Reasons for cashlow problems :
Short trade credit
Long debtors period
Outflows more than inflows(mismanagement of working capital) Uncontrolled expenses
Decline in sales
Solutions to cash flow problems
Slow down expansion
Prolong trade credit
Shorten debtors period
Get rid of stocks (JIT)
Sell idle assets
Improve the working capital cycle
Increase sales by promotion and advertising
It seems that the business has liquidity problems which are indicated in the negative closing balance, along the 6 months starting from june and ending in November. This might be diue to tha fact that the donations are declining in certain months.A huge percentage of the donations goes to educationakl projects, also the expenses are very high, such as the internet frees and the web dsigner fees, not to mention that the sonsership expenses are very high and are not spread along the months, they are concentrated in one month which is is November which results in more cashflow problems.
Benefits of cashflow statenments :
It shows future estimations of inflows and outflows.
It helps the business predict future cashflow problems inordert to find ways to show those problems. It is a progressive method that helps the business plan ahead and organize and utilize its working capital. It shows different stakeholders ( internal eg.managers, directors and shareholder) and external shareholders such as banks and potential investors. It shows the liquidity position of the business.
Spread out the payment.
Negotiate lower intwrest rates
Give customers discount if they paid in time.
Since those cashflow statements are based upon estimations and predictions which might be inaccurate. Those statements are based upon financial calculations and it might not take into consideration the external factors such as political, economical, social and technologica. Also those statements might get complicated and might be time consuming.
Budgets :These are financial forecast and plants that show the estimated expenses and estimated sales so the business can have a progressive look into the future and plan ahead.Budgets create targets that underpin the objectives of the business.
Importance of budgets:
1. Help the business plan ahead
2. Help the business organize themselves.
3. Help the business work according to their set objectives. 4. Helps the business have a progressive approach.
5. The business can forecast if they are going to have more expenses than revenues and thus find solutions. 6.
Types of budgets:
1. Zero based budgetsThis type of budgets in not based upon historical (previous) figures. It is based upon future predictions which is more realistic.
2. Incremental budgets :Those Budgets use increments of a certain percentage (increase budgets by 10%)
Variance Analysis: actul figures –budgeted figures or estimated figures. Or Sales variance=actual sales-budgeted sales =200,000-100,000
Positive and favorable=+100,000
=100,000-200,000= -100,000 if the answer is minus negative and adverse
Cost variance: Actual cost-budgeted cost
If this variance is positive then it is adverse.
Sales variance:If it is positive then it is favorable
Sales Variance:if it id negstive then it is adverse.
Description of variance
Positive and a diverse
Negative and adverse
1000 a diverse
Sales variance: actual sales-budget
Cost variance=actual- cost
Profit and loss account/ income statements
Sales revenue/turnover ( price quantity)
(opening balance+ purchases)-closing balance /direct cost/ Cost Of goods sold (vc x quantity)20,000
Gross profit=sales revenue –COGS 80,000...
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