Improving Cash Flow And Profits

Question 1

What factors can contribute to cash flow difficulties

Answer 1

• Overtrading- Occurs when a business expands quickly without organising funds to finance the expansion.
• Allowing too much trade credit.
• Poor credit control.
• Inaccurate cash flow forecasting.

Question 2

Methods of improving cash flow

Answer 2

• Improved control of working capital.
• Negotiate improved terms for trade credit.
• Offer less trade credit.
• Debt factoring.
• Arrange short term borrowing.
• Sale and leaseback.

Question 3

How to improve profits

Answer 3

• Reduce costs of production.
• Increase prices.
• Improve the business’s efficiency.
• Use capacity more fully.
• Reduce the number of standard products.
• Improve methods of production.
• Eliminating unprofitable aspects of production.

Question 4

Difficulties in improving cash flow and profit

Answer 4

• Identifying that there is a problem.
• Researching the cause of the problem.
• Coping with any adverse consequences in terms of the image of the business.
• Some decisions may have adverse consequences in the short term.