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Unit 5 D1
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Btec level 3 business unit 5
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In this assignment I will be discussing the issues that the business faced,followed by my recommendations to improve the cash flow forecast.
May
In the month of May the business did face Cash flow problems as the sales
were less but the expenses were up. This means that the business earned
less but the overheads increased causing business difficulties. The
business earned £65,000 through its sales but its overheads were
£118,600. This is clear that the business made a loss of £53,600, the main
reason for their overheads to rise was capital expenditure which had to be
paid 5 times in a year, so that creped its overlays to a great extent.
Recommendation
I would recommend the business to cut their overheads especially of
Capital Expenditure which alone caused the business to pay £61,000. This
includes different equipment’s used by the business as well as the
machinery and vehicles. Hence I will recommend the business to divide
the costs of capital expenditure equally for the twelve months; this will
decrease the burden on a particular month and will improve the cash flow
of the business. The business could have also adopted hire purchase that
means the business can pay a small sum of money monthly, which would
be a little expensive but would save the initial cost of the business that
could be used some where important. If the above actions are considered
by the business then it won’t face negative cash flow.
July
In July the business made an exceptional sale worth of £118,250, which
had the business in great success, but unfortunately for a very little time.
As they just overstepped the line for expenses and that’s where the
business faced trouble. The expenses just crawled over £121,450 that just
not only shrinked the profit but also made the business suffer by paying
£3,200 from their own pocket. The reason for that are the purchases
which were £70,950, because of this the business went in negative.
Recommendation
For July, I’d recommend the business not to spend a lot of money on
purchasing that includes equipment’s, inventory and Human Resource
Management (HRM). This is because I feel that the business has hired
more employees that what they actually need, this cause business
difficulty as they have to pay employees. The stocks are not being
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, managed by the business and I feel that the business is producing more
products than actually what they are selling. Therefore I’d advice the
business to spend less on inventory and the number of employees they
hire. This will help the business to improve their cash flow for the month of
July.
August
The business also faced negative growth in August, but the sales did make
a huge effect as it reached £120,615. This was shortly followed by the
outflow of the business which was once again more than the total money
earned by the business. The figures for the expenses were £154,369,
mainly because of high purchases and capital expenditure that alone were
added to make an astonishing figure of £122,369, which made the
business to suffer a loss of £33,754.
Recommendation
The recommendation that I will give for the problems faced in August
would be similar to the one in May. The business should spend less on the
payment section to improve its cash flow. This can be done by decreasing
a great amount of capital expenditure by doing hire purchase, this way the
business would have to pay in instalments, leaving the business lum sum
money to be invested somewhere useful. If the business also decides to
distribute its capital expenditure equally to all the 12 months, this would
also improve the cash flow from negative to positive.
September
Moving onto September, the business sales were improved to £123,027
but the overheads were quite high as well. The overheads of September
were £133,422 that was mainly assisted by the purchases worth £98,422.
The business underwent a loss of £10,395, even though it was lower than
the last year but it surely hurt the business.
Recommendation
For September I’d recommend the business to decrease its purchases as
by doing this it would improve the negative cash flow to positive cash flow
for the month. The business spends too much money on stock and
product that causes investment of the business which they can’t reclaim
from their sales as enough products aren’t sold. By saving money from the
useless purchases the business would end up saving money as well as
making profit.
October
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