Unit 5-Introduction to Accounting M2

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Analysing problems in a Cash-flow
Cash flow is one of the most important aspects of running any business whether large or small. It is one of the single most important reasons why many businesses fail, this does not matter whether how good a business is. Managing a cash flow therefore is vitally important in the smooth running survival and success of a business.

Cash flow problems cannot always be avoided as they are simply a single part of many factors that affect a business or organisations overall financial health. The flow of the monetary holdings is measured by the entirely of a company’s financial assets and not just the amount that is earned on profits. At one time or another, almost every business will experience some sort of financial situations.

Cash Flow Data for Josh

When doing a cash flow forecast, if you have more outflows then inflows then you have a serious financial problem in your hands. If this happens, the company has insufficient funds and would not be able to keep up with its payments that are due.

Here is a table with suggestions and implications on managing positive cash flow.

What to do with the money?| Implications |
Leave the money in its business account because there are some big expenses in the next month. | The disadvantage of doing this is that the business will not make any extra interest on that money so this is a lost opportunity | Put the money on deposit | This means the business puts the money into a higher rate bank account to gain extra interest that can be used in the business later. It will be transferred back when it is needed. | Invest the money in the business. | There may be other purchases that the business needs to make to improve how it works.| Pay some of its expenses early. | The business could choose to pay some of its expenses earlier than normal. This would be unusual but if one of its suppliers was finding cash flow management difficult, it may be done as a goodwill gesture....
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