Analysing the Cash Flow that a Business Might Experience

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Analysing the cash flow problems that a business might experience
Cash flow problems can be caused by a variety of factors these problems can destabilize the amount of income which will prevent the payment of liabilities that make a business function.
The main causes of cash flow problems are:
• Low profits or (worse) losses
• Over-investment in capacity
• Too much stock
• Allowing customers too much credit
• Overtrading
• Unexpected changes
• Seasonal demand
Each point will be assessed in this document.
Low profits or (worse) losses
Profit and losses are the main points to be considered in a business because a business is run by the amount of profits they receive. If there is a dent in profit then the business is not functioning correctly which will be a problem to the business. Having a cash flow that is predicting a profit is vital because it shows that the business is heading in the right direction. If a business is to fail to make to what they are spending they will face huge financial struggles that may force the business to shut down. These problems have to be accessed to make sure that the business will strive and survivor on a yearly basis.
Over-investment
This is another point that has to be thoroughly assessed to make sure that the business will not face any problems. If a business is to over spend in investment without having the finances to do so they will face major problems. Over investment will lead to a loss in the end of the annual revenue which will be an issue for any business as in an economical world every business is working to create a profitable business. If a business is to over invest in fixed costs this will be a down turn because turning fixed costs into cash in a short term is complex. In short some...

... middle of paper ...

... happen on a yearly basis. Production or purchasing usually in advance of seasonal peak in demand = cash outflows before inflows. Seasons cause different demands for customers so products have to be suitable. This can be problematic for a business’s cash flow because demands changes at the amount of stocks that are needed can change, sometimes the predicted sales are not met which will leave a dent to the business. However these issues can be managed by experience so that the business can predict what can happen on the following year.

References
Jim Riley. (2012). Cash flow problems. Available: http://www.tutor2u.net/business/finance/cash_flow_problems.html. Last accessed 20th Nov 2013.
Touch Financial . (2012). Overtrading Can Create a Cash Flow Gap Available:http://www.touchfinancial.co.uk/overtrading-can-create-a-cash-flow-gap/ Last accessed 20th Nov 2013.

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