Example of Analysis of Cash Flow

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Cash is the life blood of a business and it can't operate without it. Survival of a business depends upon its ability to meet liabilities when they fall and thus requires cash.

When considering the overall cash flow of the yacht business we can see that it is suffering from cash flow problems ever since the business started. Although the monthly deficit has been decreasing every month due to the increased sales, the overall balance carried forward is gradually going up. It would be advisable for the business to borrow a lump sum in order to offset the negative balances and increase cash flow in the business.

The business can look into increasing their sales in terms of better marketing in order to meet their heavy expenditure as well as decrease the overall fixed cost per unit thereby allowing the firm to increase its profit margins. Expenses in terms of sales are too high, as we can see that average sales over the year are £234,075 while expenses are £436,034 thereby creating a difference of £201,959 which is too high.

If the business can review its payment terms from buyers by giving less credit by giving only one months credit it will allow the firm to increase its cash for every month .

When reviewing the payments, we can see that wages are taking a high proportion of the payments. In comparison to other payments being made the wages are too high as they constitute to 38% of the overall payments. The management needs to look into why these payments are so high and find a way to decrease the overall payment being paid. If these payments come down in terms of value the management will be able to avoid taking another loan or bringing in another person into the business..

The firm should also look into leasing or buying out a premise thereby allowing it to save on the monthly cost of rent as well as securing loans which would improve the cash flow in the future when needed.

The business can also look into finding cheaper suppliers in order to...
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