Risk Assessment Essay
Any solution will have inherent risk, the key is to identify and explore the consequences of the risks so mitigation can be incorporated into the implementation plan through contingency plans. Lawrence Sports faces several risks in attempting to implement a working capital policy. The first risk is the extension of credit to customers. If Lawrence Sports is too liberal with extending credit they will be faced with the need to borrow money to meet the target cash balance. On the contrary, if Lawrence Sports has a strict credit policy, sales may suffer as a result. The mitigation of this risk is for Lawrence Sports to have a conservative credit policy and consistent implementation with every …show more content…
After completing the risk and mitigation assessment, the optimal solution has been determined to be implementing a credit policy, supplier negotiation, cash budgeting and soliciting new customers. Lawrence Sports can increase receivables by reevaluating the current credit policy and negotiating with suppliers while continuing to pursue short term financing will give Lawrence Sport the breathing room to operate. The cash budget and management of Lawrence Sports cash accounts will strengthen their and ensure financial obligations are met while providing a cash reserve for investment. Soliciting new customers will help increase cash flows and reduce Lawrence Sports' need to rely solely on Mayo Stores for a source of revenue.
Risk evaluation During this economic recession it is appropriate to use a conservative approach because of the excessive levels of financial uncertainty. Conservative approach will permit Lawrence Sports to maintain capital in the company and formulate particular evaluation concerning the company's finances. This approached builds customer relationship because it based on payment paid on good faith. The first risk that is associated with the conservative approach is that there is a lot of working capital in the long-term financing option. This approach main objective is to count on the banks for cash flow