Practice Flashcards
Flip to reveal answersWhat is overtrading?
Track your progress — Sign up free to save your progress and get smart review reminders based on spaced repetition.
All 20 Flashcards — Causes of cash flow problems
Sign up free to track progress and get spaced-repetition review schedules.
Question
What is overtrading?
Answer
Growing too fast without enough cash to support expansion — sales grow but cash can't keep up.
💡 Hint
Growing faster than cash allows
Question
Name three external causes of cash flow problems
Answer
Economic downturn, seasonal demand, late payments, competition, supplier price rises, interest rate rises.
💡 Hint
Economy, seasons, competition
Question
Five warning signs of cash flow problems in data?
Answer
Negative net CF several months, declining closing balance, negative closing balance, large one-off outflows, inflows below target.
💡 Hint
Negative, declining, below target
Question
Most commonly tested internal cause?
Answer
Overtrading — growing too fast without enough cash.
💡 Hint
Overtrading
Question
One bad month vs three bad months?
Answer
One = possible blip. Three in a row = trend needing action.
💡 Hint
Blip vs trend
Question
How does seasonal demand affect cash flow?
Answer
Sales fluctuate — a ski resort has 6 months low inflows but pays rent all year.
💡 Hint
Low season + fixed costs
Question
Name three internal causes of cash flow problems
Answer
Overtrading, poor credit control, too much stock, over-investment, poor planning, high overheads.
💡 Hint
Over-trade, over-stock, over-spend
Question
Three-step cash flow data analysis?
Answer
Identify PROBLEM → Explain CAUSE → Suggest SOLUTION = full marks.
💡 Hint
Problem → Cause → Solution
Question
Declining closing balance tells you what?
Answer
Cash reserves eroding month by month — heading toward crisis.
💡 Hint
Cash draining away
Question
Internal causes: overtrading, poor credit control, excess ___
Answer
Stock — cash locked in unsold inventory.
💡 Hint
Stock
Question
How do interest rate rises cause cash flow problems?
Answer
Loan repayments become more expensive, increasing outflows with no matching increase in inflows.
💡 Hint
Higher repayments
Question
How does poor credit control hurt cash flow?
Answer
Customers take too long to pay — cash is tied up in receivables while bills still need paying.
💡 Hint
Sold but no cash yet
Question
How does increased competition affect cash flow?
Answer
Competitors take market share, reducing sales and cash inflows.
💡 Hint
Less share = less cash
Question
Negative closing balance means?
Answer
Business has literally run out of cash — can't pay bills without extra finance.
💡 Hint
No cash left
Question
External causes: downturn, seasons, late payments, ___
Answer
Competition — rivals taking market share.
💡 Hint
Competition
Question
Busy restaurant can't pay suppliers — why?
Answer
Over-invested in expensive fit-out plus generous credit terms to clients — cash locked up despite being busy.
💡 Hint
Big spend + slow collection
Question
Always distinguish between ___ and ___ causes
Answer
Internal (controllable) and external (uncontrollable) — shows analytical depth.
💡 Hint
Internal vs external
Question
When analysing cash flow data, look for ___
Answer
Patterns — are problems one-off or recurring over multiple months?
💡 Hint
Patterns and trends
Question
Why is 'too much stock' a cash flow problem?
Answer
Cash tied up in unsold inventory — can't pay bills until stock sells.
💡 Hint
Stock = frozen cash
Question
Key difference: internal vs external causes?
Answer
Internal = within business's control (decisions). External = outside control (economy, rivals).
💡 Hint
Controllable vs uncontrollable
Read the notes
Full study notes for Causes of cash flow problems
Topic 3.7 hub
Cash flow
More from Topic 3.7
All flashcards in this topic
BM exam skills
Paper structures & tips
Track your progress with spaced repetition
Sign up free — Aimnova tells you exactly which cards to review and when, so you remember everything before your IB exam.
Start Free