Unit 5.4 - Improving cash flow and profits

Question 1

What causes cash flow problems?

Answer 1

-Overtrading - business expands quickly without organising funds to finance the expansion
-Allowing too much trade credit
-Poor credit control - getting customers to pay on time
Inaccurate cash flow forecasting

Question 2

What causes variances?

Answer 2

• One off occurrence,
• Seasonal variations
• Trend - sales rising/falling steadily over a period of time
• Self correcting

Question 3

How could cash flow be improved?

Answer 3

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