, PLEASE USE THIS DOCUMENT AS A GUIDE TO ANSWER YOUR ASSIGNMENT
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commit.
Having acquired sufficient knowledge and skills on entrepreneurship and small business management,
you must demonstrate practical competencies in managing business’s assets and risks. Think of any
business you would like to start and answer the following questions.
Question 1
1. By using practical examples, critically discuss how you would manage the assets of your
business.
Effective asset management is essential to ensure the long-term sustainability and profitability of any
business. Managing assets involves optimizing the use of both current assets (such as cash, accounts
receivable, and inventory) and long-term assets (like equipment or property) to maintain liquidity,
maximize profitability, and drive growth. In this discussion, I will critically discuss how I would
manage the assets of my business, providing practical examples of working capital management,
accounts receivable, inventory, accounts payable, and capital budgeting, and demonstrating the
importance of sound judgment in making financial decisions.
Working Capital Management: Ensuring Liquidity
Working capital management is the process of managing a business’s short-term assets and liabilities.
The objective is to ensure that the business has sufficient liquidity to meet its day-to-day operational
needs while avoiding over-investing in assets that tie up cash unnecessarily. The working capital
cycle describes how resources move through a business’s accounts: purchasing or producing
inventory increases accounts payable, selling that inventory generates accounts receivable, and
collecting receivables converts them into cash.
For example, in managing a small retail business, I would focus on managing cash flow to avoid
liquidity shortages. A practical tool for this is creating a cash budget, which forecasts inflows and
outflows of cash over a specific period. If my business anticipates slow sales during certain
months—say, after the holiday season—a cash budget would allow me to plan for these dips in
revenue. For instance, I could take out a short-term loan to cover operating expenses during these
slow periods. Conversely, if the cash budget projects a surplus during peak times, I could consider
investing the excess funds in short-term financial instruments or paying down any existing debts.
Effective working capital management ensures the business is not caught off guard by financial
shortfalls and can sustain smooth operations throughout seasonal fluctuations.
Managing Accounts Receivable: Balancing Credit and Collection
Managing accounts receivable is a critical component of working capital management. Offering
credit to customers can boost sales, but it also carries risks, including late payments or bad debt. To
manage this risk, a balance must be struck between attracting customers with favorable credit terms
and ensuring prompt collections to maintain healthy cash flow. For example, if I were running a
business that sells specialized machinery to small manufacturers, I might offer 30-day credit terms to
increase sales. However, to prevent cash flow issues, I would implement clear credit policies. These
policies might include running credit checks on new customers and setting credit limits based on
their financial history. Additionally, I would encourage early payments by offering a 2% discount for
