M1 Unit 5
Hello Sharma & Ryan,
In this memo I will answer your questions about the business cash flow forecast. Last night I analyzed the problems you can experience if you are in a business with cash flow problems.
Why a business might experience cash flow problems?
Customers take too long to pay;
When a customer purchases a product without paying, it will lead the customer to a debt as he/she owes the company money. Very often it takes a long time for the customer to pay the company back. Its income is reduced, while its expenditure increases.
Seasoning sales;
When a business starts to sell seasonal products, like sunglasses of ice cream. These products are for sale during a certain time of the year, in this case summer. That’s why you call it a seasonal product. During the winter or autumn a company will sell a lot of winter coats and sweaters and they will make a profit during that season. But during the spring and summer, they will not sell any of the winter products. That’s when the products are not getting sold. This will lead to a sales increase and will cause the company not selling their products during a whole year. Most companies will reduce the prices of these products to avoid a bigger loss and cash flow problems.
Business payments;
For example, when a business needs to pay a bill within a month but does not have the money, you will have two options. The payment has to wait or you can get a loan. Both options are not very good for the costs of the company and again will a cause a cash flow problem. Although you cannot avoid such problems.
Why do cash flow problems cause difficulties?
I will start with the difficulties a cash flow problem can cause:
Low profits or losses:
The profit that a business makes is the most important source of cash. When they only have losses, the company will eventually go bankrupt.
Allowing customers too much credit;
Well, to be honest, giving a customer credit is a good way of building sales. But late payment is a common
In this memo I will answer your questions about the business cash flow forecast. Last night I analyzed the problems you can experience if you are in a business with cash flow problems.
Why a business might experience cash flow problems?
Customers take too long to pay;
When a customer purchases a product without paying, it will lead the customer to a debt as he/she owes the company money. Very often it takes a long time for the customer to pay the company back. Its income is reduced, while its expenditure increases.
Seasoning sales;
When a business starts to sell seasonal products, like sunglasses of ice cream. These products are for sale during a certain time of the year, in this case summer. That’s why you call it a seasonal product. During the winter or autumn a company will sell a lot of winter coats and sweaters and they will make a profit during that season. But during the spring and summer, they will not sell any of the winter products. That’s when the products are not getting sold. This will lead to a sales increase and will cause the company not selling their products during a whole year. Most companies will reduce the prices of these products to avoid a bigger loss and cash flow problems.
Business payments;
For example, when a business needs to pay a bill within a month but does not have the money, you will have two options. The payment has to wait or you can get a loan. Both options are not very good for the costs of the company and again will a cause a cash flow problem. Although you cannot avoid such problems.
Why do cash flow problems cause difficulties?
I will start with the difficulties a cash flow problem can cause:
Low profits or losses:
The profit that a business makes is the most important source of cash. When they only have losses, the company will eventually go bankrupt.
Allowing customers too much credit;
Well, to be honest, giving a customer credit is a good way of building sales. But late payment is a common