Topic 5.1 & 5.2: Sources of Finance & Cash Flow
The Limitless Guide to Funding & Survival
🎯 Learning Objectives (AO1-AO4):
- • AO1: Identify SHORT-TERM vs LONG-TERM finance sources
- • AO2: Match finance type to business needs (Van vs Stock)
- • AO3: Analyse why CASH ≠ PROFIT (Sam's Crisis)
- • AO4: Recommend solutions to Cash Flow problems
The Client Brief: Sam's Surf Shop
🚨 THE CRISIS: "We're Profitable... But BROKE!"
Sam sells premium surfboards. Last month, he made a PROFIT of $2,000. His accountant said "Congratulations!" But today, Sam can't pay his $1,500 rent. His bank account shows $300.
How can a PROFITABLE business run out of CASH? 💀
PROFIT (On Paper)
Revenue: $10,000 (Recorded when sale is made)
Costs: $8,000
= PROFIT: $2,000 ✓
AO1 Knowledge: Profit = Revenue - Costs. This is an ACCOUNTING measure.
CASH (In Bank)
Inflow: $3,000 (Only customers who PAID)
Outflow: $8,000 (Suppliers want cash NOW)
= CASH: -$5,000 ✗
AO3 Analysis: Because Sam gave 60-day credit, customers haven't paid yet. This leads to negative cash, therefore he's INSOLVENT (can't pay bills).
🎯 THE GOLDEN RULE (AO1)
CASH is the money you have RIGHT NOW in the bank to pay wages, rent, and suppliers.
PROFIT is what you WILL have after customers pay their debts.
You can't pay rent with PROFIT. You need CASH! 💸
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