Unit 5 M1+D1 (Cash Flow Problems and Solutions of a Selected Organisation)
Cash Flow Problems and Solutions - Evaluation of Annual Cash Flow for 'SIGNature Ltd'
Sharma and Ryan are planning to share ownership of the business SIGNature Ltd. The business will manufacture plastic road signs for builders, tourist attractions and local councils. It is imperative that the business are continually monitoring and controlling their cash flow if they aim to survive, specifically making sure there are sufficient funds to cover immediate spending. However, SIGNature Ltd. should avoid holding too much cash as this is an unproductive asset, as the business could lose out on the possible profit from investing in the cash. Many businesses produce regular cash flow forecasts, listing all likley receipts (cash inflows) and payments (cash outflows) over a future time period, in this case 12 months.
SIGNature Ltd. decided to invest £12,500 each of their own money into the business totalling at £25000 altogether, an adequate amount of money to start off the year, however; looking at their closing balance of £5,556 this investment could have been much higher, the business were aware of their costs for this month of £135,443 - a considerable sum of money to be coming out of a start-up business in the first month. The main issue with these high outgoings is the slightly low opening balance for February, which could have been avoided if precautions had been taken such as investing more money into the business or perhaps spreading the costs. In addition to the capital introduced Sharma and Ryan were granted a bank loan of £80,000, a fairly large sum which aided the funding of machinery at £85,000, fittings and fixtures at £20,000 and insurance at £1,000 totalling at £106,000. With the uncertainty of sales these large payments in the first month may have negative results for the months to come if their sales do not meet targets, possibly landing the business into debts that will have to be repaid through external sources of finance, which will in turn
Sharma and Ryan are planning to share ownership of the business SIGNature Ltd. The business will manufacture plastic road signs for builders, tourist attractions and local councils. It is imperative that the business are continually monitoring and controlling their cash flow if they aim to survive, specifically making sure there are sufficient funds to cover immediate spending. However, SIGNature Ltd. should avoid holding too much cash as this is an unproductive asset, as the business could lose out on the possible profit from investing in the cash. Many businesses produce regular cash flow forecasts, listing all likley receipts (cash inflows) and payments (cash outflows) over a future time period, in this case 12 months.
SIGNature Ltd. decided to invest £12,500 each of their own money into the business totalling at £25000 altogether, an adequate amount of money to start off the year, however; looking at their closing balance of £5,556 this investment could have been much higher, the business were aware of their costs for this month of £135,443 - a considerable sum of money to be coming out of a start-up business in the first month. The main issue with these high outgoings is the slightly low opening balance for February, which could have been avoided if precautions had been taken such as investing more money into the business or perhaps spreading the costs. In addition to the capital introduced Sharma and Ryan were granted a bank loan of £80,000, a fairly large sum which aided the funding of machinery at £85,000, fittings and fixtures at £20,000 and insurance at £1,000 totalling at £106,000. With the uncertainty of sales these large payments in the first month may have negative results for the months to come if their sales do not meet targets, possibly landing the business into debts that will have to be repaid through external sources of finance, which will in turn