M1; Analyse Cash-Flow Problems
Cash-Flow problems and causes
Too much stock; Having too much stock within the business which will tie up the cash that the business has and by having too much stock there is an increased risk that the stock won’t be able to be sold. Low profits or losses; The business isn’t making enough money in profit and maybe making a loss, which could lead to the business running out of money and therefore needing to close down. Overtrading; This happens when a business expands far too quickly, which will start to put pressure on its short-term finance, such as company may choose to open to many chains before each chain starts to generate a profit. Over-Investment in capacity; This will happen when a business spends too much money on production capacity such as factory equipment, which is not getting used and does not generate any revenues, so it means that the business would of wasted their cash. Allowing customers too much credit; Customers that buy on credit are known as trade debtors, giving customers the option to pay on card is a good way for the business to build up its revenue, but people paying late is a common problem and slow paying customers will put a strain on the cash flow. Seasonal Demand; This is a predictable change in seasonal demand which will create cash flow problems, but these are expected and businesses should be able to handle this. Some problems with Sharma and Ryan’s Cash-Flow forecast
As a business they were starting of as a brand new business, so it wouldn’t be possible for them to get so many sales within the first few months of them opening, so if we were to take out the sales from the first two months.. As you can after taking out the sales that Sharma and Ryan made in January and February, they would already be making a loss within the first two months this is because their income would not meet their expenditure. Sharma and Ryan would therefore go into overdraft which they agreed with the bank before they...
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