The Difference Between Cash and Profit
Explain the difference between cash and profit
Cash and profits are not the same. More businesses fail for lack of cash than for lack of profits.
Profits, the difference between total revenue and total expenses, are an accounting concept. Cash flow represents the flow of actual cash (the only thing businesses can use to pay bills) through a business in a continuous cycle. A business can be earning a profit and be forced out of business because it runs out of cash.
Outline the steps involved in developing a cash budget.
A .The cash budgeting procedure outlined in this chapter tracks the flow of cash through the business and enables the owner to project cash surpluses and cash deficits at specific intervals.
The five steps in creating a cash budget are as follows: forecasting sales, forecasting cash receipts, forecasting cash disbursements, and determining the end-of-month
How can an entrepreneur launching a new business forecast sales?
Depends on the type of business you are planning to open. For a retail business you really want to visit the location of where you want to open such as a mall. Then physically count the amount of people who pass you by. Also, see if there are any competitors in the mall. If there are any stand outside the store and count the amount of people that go in there. Also, count the people who leave with a shopping bag from the store. This is how you can forecast future sales at your new business.
If you are opening a service type of business, hopefully, you are already working in that line of work. I would take the sales you are already doing on your own and calculate it in that manner.
What are the “big three” of cash management? What effect do they have on a companys cash flow?