M1.
Unit 5.
Analyse the cash flow problems a business might experience.
Introduction.
In this assignment I will be discussing why a business might experience cash flow problems, why this can cause difficulties and any potential dangers to the business flow forecast ‘L & S Ltd’.
Why a business might experience cash flow problems and why it can cause difficulties.
There are various reasons why a business may experience cash flow problems.
Here below is a list of cash flow problems that could occur;
Unexpected changes.
Allowing customers too much credit.
Low profits.
Unexpected changes.
Unexpected changes could be internal or external. An example of an internal change could be machinery breaking down, slowing down the process of the business and also costing more money to fix the machinery.
An external example could be an economic downfall, where the country could be facing recession which could lose the business potential money.
Allowing customers too much credit.
Allowing customers credit on items is a good way of building trust and relationships with customers as it could be effective for the customer therefore when the customers wants to purchase other items they may possibly return back to the same business however it is also bad if the customer cannot afford to pay it back therefore the business is losing money slowly and worst case scenario is if the customer doesn’t not pay back at all.
Low profits.
Low profits could also be a reason why a business would suffer from bad cash flow. If the business is not making enough money, it could be forced down to close and sell up due to not being able to pay for rent, wages, bills and any other long term or short term liabilities such as bank loans.
Potential dangers for ‘L & S Ltd’s cash flow forecast.
From viewing the cash flow forecast I suggest that one of the problems the company had to face with was taking an overdraft out.
This caused the business to have low opening...