Question 1: Define 'cash flow' in the context of a business. Why is positive cash flow important for a company?

Answer: Cash flow is the movement of money into and out of a business. Positive cash flow is important because it ensures the business can pay its expenses, invest in growth, and avoid insolvency.

Question 2: Identify three sources of cash inflows for a retail business.

Answer: Sales revenue, loans received, and investment income.

Question 3: List two common causes of cash flow problems in small businesses.

Answer: Delayed customer payments and unexpected expenses.

Question 4: Explain the difference between cash inflows and cash outflows. Provide an example of each.

Answer: Cash inflows are money received by the business, such as sales revenue. Cash outflows are money spent by the business, such as paying rent.

Question 5: Describe what a cash flow forecast is and why it is useful for a business.

Answer: A cash flow forecast predicts the money expected to come in and go out over a future period. It helps businesses plan for shortages and ensure they have enough cash to operate.

Question 6: Identify two strategies a business can use to improve its cash flow position.

Answer: Speed up receivables by invoicing promptly and negotiate longer payment terms with suppliers.

Question 7: A business expects a large customer payment at the end of the month. Describe how this might affect its cash flow in the short term.

Answer: The business may experience a cash flow deficit early in the month due to expenses, but the large payment at month-end will improve cash flow later.

Question 8: Sketch a simple cash flow statement for a business over one month. Include sections for opening balance, cash inflows, cash outflows, and closing balance.

Answer: A clear cash flow statement should show: Opening balance at the start, total inflows (e.g., sales, loans), total outflows (e.g., wages, rent), and the closing balance (opening balance + inflows - outflows).

Question 9: Explain what is meant by 'cash flow cycle' and give an example involving stock and sales.

Answer: The cash flow cycle is the time between paying for stock and receiving cash from sales. For example, a business pays suppliers for stock and later sells the stock to customers, receiving cash after a certain period.

Question 10: Discuss the potential consequences for a business that consistently experiences cash flow shortages.

Answer: Cash flow shortages can lead to the business being unable to pay bills, suppliers, or employees, which can damage reputation, lead to penalties, or even cause bankruptcy.

Question 11: Draw a diagram representing the relationship between cash inflows, cash outflows, and the net cash flow over a period. Label each component clearly.

Answer: A suitable diagram would depict arrows pointing into a box labeled 'Cash Inflows,' arrows pointing out of a box labeled 'Cash Outflows,' and the net cash flow calculated as inflows minus outflows.