Business Level 1 Unit 4 - D1
Unit 5 Introduction to Accounting D1
Recommend and justify actions a business might take when experiencing cash flow problems.
When experiencing cash flow problems there are a few recommendations to make, these problems include:
• Being overdrawn on consecutive months. • Having too much money • Difficulty in predicting costs
When being overdrawn on consecutive months you should look to cut back on immediate expenses such as insurance, suppliers, rent and employees. You could also increase product prices however you have to bare in mind whether the customers will pay that little bit extra to pay for the product. Another option, but more risky, is to gain more credit from creditors but this will bring interest costs and adds another liability for the future.
When having too much money in a cash flow you should reinvest the capital back into the business in order to advance in technology, assets or staff. This will help the company move forward and improve the service offered to consumers. Another option is to put the money in a savings account, premium bonds or shares. This will provide more interest on your money and let it grow instead of letting it just sit around gathering dust.
The final problem, difficulty in predicting cash flow costs, should be resolved by asking your sale assistants, doing market research or asking an experienced accountant for guidance. You should ask your sale assistants because they are the people on the ground floor and know what’s going on, what the customers like and what products fly off the shelf. They have first hand knowledge on the company as they process the day to day dealings whereas a manager might not always be around. Doing market research will help to find the average prices of all products or services such as insurance, this will ensure you will get the best quote and avoid under predicting the costs for that month. Just to be certain, you can then go and ask an accountant for guidance as
Recommend and justify actions a business might take when experiencing cash flow problems.
When experiencing cash flow problems there are a few recommendations to make, these problems include:
• Being overdrawn on consecutive months. • Having too much money • Difficulty in predicting costs
When being overdrawn on consecutive months you should look to cut back on immediate expenses such as insurance, suppliers, rent and employees. You could also increase product prices however you have to bare in mind whether the customers will pay that little bit extra to pay for the product. Another option, but more risky, is to gain more credit from creditors but this will bring interest costs and adds another liability for the future.
When having too much money in a cash flow you should reinvest the capital back into the business in order to advance in technology, assets or staff. This will help the company move forward and improve the service offered to consumers. Another option is to put the money in a savings account, premium bonds or shares. This will provide more interest on your money and let it grow instead of letting it just sit around gathering dust.
The final problem, difficulty in predicting cash flow costs, should be resolved by asking your sale assistants, doing market research or asking an experienced accountant for guidance. You should ask your sale assistants because they are the people on the ground floor and know what’s going on, what the customers like and what products fly off the shelf. They have first hand knowledge on the company as they process the day to day dealings whereas a manager might not always be around. Doing market research will help to find the average prices of all products or services such as insurance, this will ensure you will get the best quote and avoid under predicting the costs for that month. Just to be certain, you can then go and ask an accountant for guidance as