3.5.3 Making financial decisions: sources of finance

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    3.5.3 Making financial decisions: sources of finance

    Internal and external sources of finance

    Advantages and disadvantages of different sources of finance for short and long term uses

    ADD IN SOURCES OF FINANCE TABLE

     

    3.5.4 Making financial decisions: improving cash flow and profits

    Methods of improving cash flow

    Causes of poor cash flow:

    • Poor management – a manager may not have sufficient financial training or experience and end up making decisions that negatively affect cash flow
    • The business is making a loss – the business is receiving less revenue than they are paying out in costs. This makes the payment of bills very difficult
    • Offering customers too long to pay – if you have to pay your bills before you receive payment from your customers you are likely to experience a cash shortage
    • Over optimistic forecasting – firms are sometimes over optimistic when forecasting their cash flow. Essentially, they could end up spending money they don’t have because they think they will make it back in the future (according to their forecast)

     

    How to improve cash flow:

    • Cut costs
    • Use an overdraft
    • New source of cash inflows
    • Reschedule payments

     

    For cash flow to be healthy, firms want long credit terms from suppliers and want to collect money from debtors as soon as they can. They will need sufficient working capital to make sure they can pay all the bills

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