Controlling cash flow for business growth
A CIMA case study

Page 1: Introduction

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CIMA is the Chartered Institute of Management Accountants. Its members are trained and qualified in the vital area of management accountancy. Businesses can only compete effectively if they have the best financial information and the best people to make decisions based on that information. CIMA is the world”s leading and largest professional body of management accountants. Its...
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Page 2: The importance of cash flow

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Cash flow is of vital importance to the health of a business. One saying is: “revenue is vanity, cash flow is sanity, but cash is king”. What this means is that whilst it may look better to have large inflows of revenue from sales, the most important focus for a business is cash flow. Many businesses may continue to trade in the short- to medium-term even if they are making a loss...
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Page 3: The cash flow cycle

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CIMA-trained management accountants are involved in all sectors of industry - from government departments to well-known names such as Rolls-Royce and Tesco. Each organisation has to manage and monitor its cash flows carefully. Cash does not just arrive; it must be chased, recorded and managed. At all times, there must be enough cash to pay bills. For a retail business like Tesco, the main cash...
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Page 4: Managing cash flow

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Managing cash flow is vital both to the survival of a business and to its long-term well-being. CIMA-qualified management accountants often hold key positions in organisations, such as Finance Director or Financial Manager. Their thorough knowledge of the industry in which the business operates allows them to forecast, monitor and control cash flows using key indicators for that business, such...
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Page 5: Benefits of effective management accounting

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The Confederation of British Industry (CBI) is the group that represents the interests of many British businesses. It sees cash flow as crucial to the survival of businesses. Richard Lambert, CBI Director-General, says: 'We need to keep business working to safeguard jobs and we need to act now. The biggest threat hanging over businesses is cash flow. If they cannot get their hands on the cash...
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Page 6: Conclusion

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Even though a business may be trading profitably, it can still fail if cash is not available. Premier League football club (and FA Cup winners) Portsmouth FC is a recent example of a business with liquidity issues. It continued trading playing games, charging entrance fees, selling programmes and all its other activities producing cash inflows, but it failed to keep control of its cash...
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