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Unit 5 - Business Accounting - Task 2 (M1 and D1) £2.99   Add to cart

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Unit 5 - Business Accounting - Task 2 (M1 and D1)

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This is the second task of Unit 5 containing M1 and D1. For M1, you need to describe and explain the problems that your given business (for this document SIGNature Ltd) and for D1, you need to make recommendations on how they could avoid cash flow problems.

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  • February 12, 2019
  • February 12, 2019
  • 3
  • 2016/2017
  • Essay
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By: mohammedusaid1 • 4 year ago

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JVellaG
M1 - Analyse the cash fow problems a business might experience.
Introduction
SIGNature Ltd shows the movement of money going in and out of the business within a period of 12
months (1 year). In the frst month, SIGNature Ltd are predicting to receive a bank loan and also
have their own investment, meaning that they had a lot of revenue to start with. Although, the
owners of SIGNature Ltd think that they’re going to spend all of their money on expenses and the
general equipment such as Machinery and Fixtures and Fitngs, which would cause SIGNature Ltd to
go into a defcit closing balance at the start of the year. Furthermore, every time SIGNature Ltd had a
defcit closing balance in a month, they were charged an extra 1.5% of the closing balance which was
the payment for the overdraf charge. However, when it got to July, SIGNature Ltd predict to make a
recovery and generate more sales, enough sales to put themselves into a surplus cash fow, meaning
that SIGNature Ltd wouldn’t need to pay for an overdraf charge. By the end of the year, SIGNature
Ltd predict to stay at a surplus cash fow, making a proft of £26,105 in December.

SIGNature Ltd’s cash fow forecast suggests that their business is budgeted to make a good recovery
because in the frst six months they were placed in a defcit closing balance but for the last six
months they ended up making a proft. his has happened by the increase in sales, especially from
July to September, and as a result of that, SIGNature Ltd started making profts from July onwards
despite the higher payments on purchases. Furthermore, it is good that SIGNature Ltd are predicting
to make a reasonable amount of profts within their frst year as a new business because they’re
making proft by the end of the year, despite that they’re predicting to make the least profts from
September to December.

Problems with SIGNature Ltd’s cash fow forecast
 In the frst six months, SIGNature Ltd were placed in a defcit closing balance. his is because
their costs were too high in the frst month.
 SIGNature Ltd have planned to spend so much money on their machinery in the frst month
which is £85,000 and also spending money on fxtures and ftngs which is £20,000,
therefore it has increased their costs in the frst month.
 he two employees working for the owners are getng paid the same salary as the owners
(£19,000 a year).
 In the six months from April to September, SIGNature Ltd are predicting to pay for more
purchases in that time period, causing the VA on purchases to be higher. his is because as
the costs are increasing, the VA is increasing as they have to pay an extra 20% of their costs
in that month, which is paid of every three months for all of the VA purchases in every
three months altogther.

How to improve their cash fow forecast
 Reduce the staf wages. his is because the employees are getng paid the same salary as
the owners, therefore has no proper hierarchy in job roles and employment.
 Ensure that they purchase less stock and use the stock that they have lef over. his is
because if they have stock that can still sell, then it shouldn’t go to waste, therefore they
should keep the stock and try to sell it.
 Purchase cheaper machinery which is good quality, similar to the quality of the £85,000 of
machinery that they want to purchase. his is because their costs are too high, which needs
to be lowered in order for SIGNature Ltd to reduce their proft losses.

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