#Immediacy on speech making

In effect, the business is generating cash which can be used for ...

In effect, the business is generating cash which can be used for its own expansion. Whether you choose to do so or leave the business ticking over while you 'milk' it of the surplus cash is a topic we shall discuss in a later section. If your balances show a declining trend with progressively more negative months, then your business is heading for trouble. In effect, you will have to keep pumping money into it just to keep it alive.

Such a situation calls for urgent and realistic action.

Unless you can turn the business round pretty rapidly, the best course is probably to close it down.

The sooner you do so, the less you will lose. If you are inexperienced in making cash-flow forecasts, then it is only common sense to be cautious in your interpretation. You will, however, be surprised how useful the forecasts become as you gain experience in making and interpreting them.

Nevertheless, you must remember at all times that they are estimates, estimates which are subject to error, to your personal bias and to the unexpected. Obviously these qualifications apply with greatest force when the forecasts point to the need for a major decision. In such cases, check the forecasts in every way you can and, if they are subject to a range of error, make sure that the conclusions are the same at both ends of the error range. Once the calculations are confirmed, do not flinch from the decision and its consequences.

Cash flow is not, of course, an alternative to profit; it is simply another factor which you have to watch when running a business.

For survival, you must both make a profit and control cash flow. When there is a cash-flow crisis, entrepreneurs may have to cut prices sharply to get some money in, just to avoid going bust at that moment. But if you sell goods at below what it costs to replace them and you do it too often you will find that you have merely postponed going bust, not prevented it.

Is it not better to control cash flow so that the crisis doesn't arise? Price, cost and value The above three words are often used interchangeably in conversation. Their meanings are not identical, however, and to ensure clear thinking on money matters, it is essential to appreciate their differences. Price is the amount of money which is paid when something is bought or sold or when a service is provided. An article may have more than one price eg a cash price and a credit price.

and, as we all know, the same article may have different prices in different shops. Nevertheless, the price involved in a specific transaction is usually known precisely and is the same for both buyer and seller. Cost is the amount of money which must be paid to obtain something. Cost may be the same as price but often is not.

For instance, if you buy a piece of equipment, you may pay a certain price £1P.. But before you can use it, you have to spend more, to have it delivered £1D and fitted F. Although its price is £1P, its cost is £1 P+D+F. This shows how costs can be additive, ie the fitted cost is the sum of the price plus delivery cost plus fitting costs. Value is what some thing is worth to someone, and an article can be valued in three different ways. Replacement value is what it will cost to replace.

If it is readily available at the same price as you paid ...

If it is readily available at the same price as you paid and does not involve extra costs for delivery and fitting, its replacement value is the same as you paid for it.... read more

Website value allows you to calculate the tax consequences of a decision ...

Website value allows you to calculate the tax consequences of a decision about money, but it does not tell you what the decision should be. Fi... read more

The various items in the balance sheet are usually valued at website ...

The various items in the balance sheet are usually valued at website value. What basis should be used for tied capital? As described in the section above, there are th