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BTEC Unit 5 Business Accounting M1 (Merrit)
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BTEC Unit 5 Business Accounting M1 (Merrit)
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M1:Analyse the cash flow problems a business might experience.
In this assignment I am going to analyse the cash flow problems a
business might experience when the cash flow forecast is not
maintained correctly.
A cash flow problem comes when the outflows of a business are
higher than the inflows which means that the business will have a
negative cash balance. This will result in the business not being able
to afford or pay for any of their expenses. Also, the business could
have higher inflows in different seasons in one year. This would mean
that they are not able to pay their expenses either. If the products a
business sells are not from the right standard for their target market
the customer will not buy it. The customers will go somewhere else
to buy the same products cheaper from the competitors of the
business. Which will mean a lower amount of sales.
Another problem a business might face because of cash flow is when
a business offers too much credit to trade debtors, this is a good way
to build revenue, but there will be late repayments by the customer.
The business must consider a strategy to make the payments happen
frequently again. A business could choose to negotiate with the
debtors about a specific date the cash has to be paid so the debtors
know when the amount has to be paid back to the business
remaining balance. This is a good solution, because the debtors will
be forced to pay back the remaining amount of money they owe. This
will help the business keep running in a smooth order. An alternative
method is to check the credit of debtors before buying goods on
credit this will help the business find out if the debtors are able to
pay the amount back.
Another cash flow problem might occur when a business purchases
too much assets. Capital expenditure should only happen if there is
an important need and the business is able to afford the purchase. if
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