Small Business: Test 2, Chapter 8 Flashcards

Forecasting, collection, disbursing, investing, and planning for the cash a company needs to operate smoothly.

The time lag between paying suppliers for merchandise and receiving payment from customers.

Cash finder Cash planner Cash distributor Cash collector Cash conserver

Firsy and foremost responsibility. must make sure there is enough capital to pay all present (and future) bills. not a one time task, it is an on-going job

Makes sure the company's cash is used properly and efficiently. must keep track of its cash, make sure it is available to pay bills, and plan for its future use. requires you to forecast the company's cash inflows and outflows for the months ahead with the help of a cash budget.

Requires you to control the cash needed to pay the company's bills and the priority and timing of those payments. forecasting cash disbursements accurately and making sure the cash is available when payments come due is essential to keeping the business solvent.

Make sure your customers pay thier bills on time. (too often they focus on pumping up sales, while neglecting to collect the cash from those sales). uncollected accounts drain a small company's pool of cash very quickly

Make sure your company gets maximum value for the dollars it spends. avoiding unnecessary expenditures is an important part of this task. the goal is to spend cash so it will produce a return for the company.

A "cash map" showing the amount and the timing of a firm's cash receipts and cash disbursements over time. Predicts the amount of cash a company will need to operate smoothly. A helpful took for visualizing the firm's cash receipts and cash disbursements and the resulting cash balance.

~Determine a Minimum Cash Balance ~Forecast Sales ~Forecast Cash Receipts ~ Forecast Cash Disbursements ~Estimate End-of- Month Cash Balance

Not too much... not too little... but a cash budget that's just right!

The heart of the cash budget. Sales are ultimately transformed into cash receipts and cash disbursements. "Lumpy" sales patters are common. Prepare 3 sales forecasts: Most likely Pessimistic Optimistic

Recored all cash receipts when actually received (ex. the cash method of accounting) Determine the collection pattern for credit sales; then add cash sales.

Key: record cash disbursements when you will pay them, NOT when you incur the obligation to pay them. start with those that are fixed amounts due on certain days. review the business checkbook to ensure accurate estimates. add a cushion to the estimate to account for "Murphy's Law"

Take beginning cash balance... add cash receipts... subtract cash disbursements Result is cash surplus or cash shortage (repay or borrow?)