Recommend and justify what can be done to improve cash flow problems
Failing to manage cash and cash flow can cause cash flow problems, or in the worst case, business failure through . Even if a business has many customers, it can still have . Businesses must find ways to improve cash flow to ensure this does not happen.
Three scenarios where a business can suffer cash flow problems include:
- at , when large amounts of money need to be invested to get the business started, for example to pay for equipment, initial stock, rent, insurance, hiring, training and staff costs
- during rapid growth, when the business needs to grow quickly but cannot keep up with the cash being paid out, eg if the business needs to find larger premises and invest in making them ready to move into
- a sudden drop in the level of demand for a good or service can result in a business having a very low amount of revenue with high costs
Businesses need to reduce the risk of failure and insolvency. There are a number of ways that a business can improve their cash flow, these include:
- increase revenue – a business can try to sell more products
- reduce costs – a business may negotiate better deals with suppliers or cut back on non-essential spending
- delay payments – a business can try to delay payments on , and on
- extra funding – a business may be forced to get a business loan or apply for a
