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Putting a Business Idea Into Practice

Cash and cash flow

  • 3 things to know
  • Paper 1

Overview

Why cash matters and how its shortage causes insolvency, cash against profit, cash-flow forecasts with inflows, outflows and balances, and worked forecasts for real businesses.

What you need to know

Answer each one before you reveal it.

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Key term

Give three things a business must pay for with cash.

Key term

What is cash?

Key term

What are overheads?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What is cash?

    Model answer

    Cash is the money a business holds in notes, coins and its bank account. Cash is available to spend straight away.

  2. 2

    Give three things a business must pay for with cash.

    Model answer

    A business must pay its suppliers. A business must pay overheads such as rent and utilities. A business must pay its employees.

  3. 3

    What are overheads?

    Model answer

    Overheads are the regular running costs of a business that do not relate directly to production. Rent, business rates and electricity are overheads.

  4. 4

    What is insolvency?

    Model answer

    Insolvency is when a business cannot pay its debts when they are due. An insolvent business may be forced to close.

  5. 5

    How can a shortage of cash lead to business failure?

    Model answer

    Suppliers may stop delivering and staff may leave if they are not paid. Creditors can take legal action, forcing the business to close.

  6. 6

    What is the difference between cash and profit?

    Model answer

    Cash is the money a business has available at a point in time. Profit is the amount by which revenue exceeds costs over a period.

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Enterprise and Entrepreneurship
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Revenue = price × .
quantitycostprofit

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Cash inflows means money coming into a business.
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