Page 108 - Spring Into Markets 2021
P. 108

  C – Cash flow and customers
• Poor cash flow is a common reason for business failure. For this reason the inflow and outflow of cash need careful monitoring and management
Cash inflows
– Payment for goods or services
from your customers
– Receipt of a bank loan
– Interest on savings and investments
– Increased bank overdrafts or loans
Cash outflows
– Purchase of stock, raw materials
or tools
– Rent and daily operating expenses
– Purchase of fixed assets – PCs, machinery, equipment, etc.
– Loan repayments
– Income tax, corporation tax, VAT and
other taxes
– Reduced overdraft facilities
• A 3­month rolling cash flow often works best. Rolling means a cash flow forecast is recalculated every week with up­to­date information for the coming weeks. It should not be set in stone but change along the way
• Finally, don’t delegate all the ‘numbers’ to someone else; you need to understand certain concepts so you can manage your business effectively. Some fundamentals are vital to the health of your business. Know your...
£ Break­even point = An estimate of when your sales/revenue will equal the costs to set up and operate your business. Knowing when you will reach the break­even point is important — when you pass it, you start to make a profit!
£ Profit margins (gross and net) = Gross profit margin is the difference between what you sell a product for and what you buy/make it for (expressed as a %). Net profit margin is the amount left after you have taken into account your costs to buy/make the product and then sell it. These expenses can include: stall rent, transport, postage, heat, light, wages, etc.
£ Cost of sales (cost of goods) = The base cost of buying your product from a supplier or manufacturer. This might include: the cost of stock you buy for resale; components/raw materials to make your product; labour to produce the product; machine hire; small tools; other production costs.
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