Chapter 13 Entrepreneurial Business

3 Cash Flow Problems

1. Difficulty collecting money due from customers 2. Seasonal variations in sales 3. Requirements to periodically make large capital investments

Common ways employees steal cash

1. Larceny and embezzlement (stealing after money has been recorded) 2. Skimming (pocketing money) 3. Phony disbursements (making fake invoices)

Steps to Cash Flow Management

1. Review your cash needs on a set schedule 2. Arrange a business line of credit or revolving loan before you need it 3. Obtain a business credit card 4. Collect your receivables- do not become your customer' interest free bank 5. Plan and schedule your payments 6. Use online collections and payments

3 Sources from which Cash Comes

1. Selling products or services (cash flow operations) 2. Investments made such as stocks, bonds, lands, buildings, or equipment (cash flow from investment) 3. Financing

Techniques to Decrease Cash Outflows

1. Trade discounts 2. Noncash employee incentives 3. Use of temporary agencies 4. Consignment 5. Barter 6. Control of the timing of paying out cash' 7. Negotiation of terms with suppliers 8. Timing of purchases 9. Gaming of the payment process

Strategies for Handling Cash Shortages

1. Use personal money 2. Borrow 3. Adjust schedules purchases 4. Adjust scheduled payments 5. Try to collect money due 6. Sell investments 7. Sell receivables 8. Lay off employees

Small business experience difficulty in cash flow because...

1. the mismatch in time between receiving cash and spending cash 2. the mismatch between the size of payments received and the size of payments that must be made

Cash Budget

A cash budget identifies when, how, and why cash is expected to come into the business, and when, how, and why it is expected to leave.

Cash Receipts Budget

A schedule of the amounts and timings of the receipt of cash into a business. For many businesses, this is the same thing as a sales forecast

Comprehensive Budget

Also often referred to as master budgets; sets of budgets that detail all projected receipts and spending for the budget period

Money

An accepted medium of exchange

Operating Cycle

Another name for cash-to-cash cycle

Short-term Debt

Any debt that must be paid in less than one year from the date of the financial statement on which it is reported.

Currency

Coins and paper bills used as money

Noncore Projects

Revenue-producing tasks and activities related to, but not part of, the primary strategy of a business.

Noncash Incentives

Rewards that do not require payment of cash, such as stock options, compensating time off, or added vacation days.

Consignment

The practice of accepting goods for resale, without taking ownership of them and without being responsible to pay prior to their being sold

Growth Trap

a financial crisis that is caused by a business growing faster than it can be financed

Timing Purchases

a method of controlling the timing of cash outflows that is invisible to suppliers and vendors

Discounts for Prompt Payment

a reduction in sales price provided to credit customers for paying outstanding amounts in a timely manner

cash disbursements budget

a schedule of the amounts and timings of payments of cash out of a business. Obtained through two sources: 1. the balance of our cash account after the month-end reconciliation is complete 2. the amount of cash shown on our pro forma balance sheet

Payables

amounts owed to vendors for merchandise or services purchased on credit

Receivables

amounts that are owed to a business for merchandise that was sold on credit

Bearer

any person or business entity who possesses a security

Cash Equivalents

assets that may be quickly converted to cash

Factoring Receivables

borrowing money secured by a firm's accounts receivable

Deposits and Progress Payments

cash payments received before product is completed or delivered

Demand Deposits

money held in checking and savings accounts

Cash

money that is immediately available to be spent

Commercial Paper

notes issued by credit-worthy corporations

Trade Discounts

percentage discounts from gross invoice amounts provided to encourage prompt payment

Cash Flow Management

planning and tracking the amounts and timing of money to be received and paid during the business cycle

pro forma cash flow statement

reports anticipated sources and uses of cash from operations, investing, and financing activities

Marketable Securities

stocks and bonds that are traded on an open market

Barter

the practice of trading goods and services without the use of money

Cash-to-cash Cycle

the time that is required for a business to acquire resources, convert them into product, sell the product, and receive cash from the sale

Gaming the Payment Process

using methods to appear to be paying bills on time, when in fact payment is being delayed or avoided