Unit 5 M1+D1 (Cash Flow Problems and Solutions of a Selected Organisation)

2527 Words Apr 27th, 2014 11 Pages
Cash Flow Problems and Solutions - Evaluation of Annual Cash Flow for 'SIGNature Ltd'

Sharma and Ryan are planning to share ownership of the business SIGNature Ltd. The business will manufacture plastic road signs for builders, tourist attractions and local councils. It is imperative that the business are continually monitoring and controlling their cash flow if they aim to survive, specifically making sure there are sufficient funds to cover immediate spending. However, SIGNature Ltd. should avoid holding too much cash as this is an unproductive asset, as the business could lose out on the possible profit from investing in the cash. Many businesses produce regular cash flow forecasts, listing all likley receipts (cash inflows) and
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In addition to this Ryan and Sharma are continuing to pay themselves as well as their two staff, raising costs by £3,166 which could be spent on other aspects of the business while continuing to pay the same rates for all other costs; consequently their outgoings for the month total at £40,143, a higher than optimum total. Businesses are subject to unpredictable external forces, meaning they must make financial provision for any unforeseen expenditure. Equipment breakdowns, tax demands, strikes and bad debts are common examples of emergency expense. In the early stages of business development it is more likely that business owners are affected by unforeseen expenditure due to lack of experience or insufficient planning. For Sharma and Ryan, it is very important they take these factors into account when financing their business, their current poor financial management could lead them to additional expenses they are not able to afford and could possibly have long-term effects on the business which will be hard to recover from. In order to raise funds SIGNature Ltd. may consider stimulating sales for cash, many business can generate cash by offering large discounts for customers who will pay in cash, reducing the amount of time waited to receive cash from sales to cover any emergency costs incurred. Sharma and Ryan could simply delay payments, keeping this cash within the business for a longer period of time and only

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