A business should always watch their cash outflow and inflow; as well how much money is put away must be maintained. It is important to operate a business with a balance in capital whether large or small. A business could find itself at a production standstill or even bankruptcy because of a lack of cash. Lawrence Sports lacks on capital working policies as well as a wide range of customers and suppliers.
Working Capital Policy
Cash budgeting is an important tool in an effective capital working policy. A cash budget is a way to monitor a business cash inflows and outflows, which in turn assist in forecasting a company's ability to pay debt, expenses and can help with planning short-term credit. Lawrence Sports is in a constant state of worry in regards to paying off the loan without borrowing any more money. LS suppliers and customers felt the impact the most. Lawrence Sports relies on on-time payments from the customer, stretched out payments to the suppliers and a credit line with high interest rates. The company appears to act more out of impulse versus long-term planning that can help maintain control over the finances.
Lawrence Sports needs to monitor the time between cash inflows and outflows. For example, since Lawrence Sports main cash source is from Mayo, Lawrence Sports needs to monitor how long it takes from the time materials are ordered for Mayo and how long it takes for Mayo to make the final payment. A cash budget would help LS in showing when cash is needed to pay bills. If the bill is due before payment is received, then that could indicate a need for financing until payment is received. Lawrence Sports can then try to negotiate payment terms with customers and suppliers to strike a balance between the inflows and outflows and depend less on short-term financing to pay bills until the final payment arrives. A relationship with the company's suppliers and the company's creditworthiness... [continues]
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