Finance

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Budgeting

A household and business must manage their money properly

Must keep proper accounts of all income and expenses

A household must make their mortgage repayments or their house will be repossessed

A business must have cash ready to pay is bills or its credentials may take it to court and have it liquidated= Closed down and sold off

To stop this from happening, both prepare a household budget or cash flow forecast

Cash flow Forecast

A cash flow forecast is used to predict how much money a business will have in the future - Example of Planning

You take away expected future payments (money out ) from expected future receipts (money in)

Example of cash receipt

Cash from selling goods

Government grants

Borrowing money from bank

Example of cash payment

Cash paid to buy stock

Cash paid out in dividends

Cash paid for taxes

How to deal with expected future deficit

A deficit is when receipts are less than payments - not enough money to pay bills

Increase receipts by :

Use better credit control - encourage debtors to pay bills early ( offer discount) and charge extra for those who don't pay on time.

Sell investments - raise cash

Have sale - raise cash

Reduce cash payments by:

Use hire purchase or leasing - do not have to pay lump sum of money

Make cutbacks - Lower wage bill or switch service provider ( cheapest option)

Reduce cash paid out to stake holders - offer free shares of the business instead

Finance