D1 - Unit 5 Accounting
Dear Sharma and Ryan, for a first year business your cash flow looks good however there are numerous ways in which a business can improve its cash flow. The most crucial part is getting money in as fast as possible and delaying any outflows. Firstly I believe that the business is a financial extension for when your account reaches zero. This would allow a business to withdraw and spend funds that they don’t actually have, this helps them to continue spending. It will allow you to have a set amount of money to use in this designated time; this will give the business a chance to continue with the crucial spending before they get their next set of income. The negative aspects of this are that you will have to pay a level of interest when paying back this money, however it can get a business out of short term difficulties therefore as a business you will have to weigh up whether it’s worth it. Another option is for trade credit. Trade credit is an agreement in which your business can purchase off of a supplier. The business will then be given a set amount of days to repay this, whether it’s 30, 60 or 90 days. This gives the business extra time to make sure that the cash flow is looking as good as it can. This means that they can decline any outflows, while still getting there inflows. In some cases if you pay it back early you may get it at a cheaper price. This is also the same that if they were to buy in bulk then it may also reduce the price in order for them to make a higher profit margin off of each product. I feel this is a good way for the business to maintain a good cash flow forecast. Negatives of this are such as the business having extra costs to worry about, possible costs stashing up, and also you have to be careful and make sure that the funds are actually going to be coming into your account to pay them in the future. Another point is to have the sale and leaseback scheme. This is where a buyer wants to make...
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