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Business Unit

In: Business and Management

Submitted By asad666
Words 373
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Cash flow problems mean a business spends more money than it earns. For example, if you spend £5,000 on rent, supplies and payroll this month, but only take in £4,500 in sales you have a cash flow of negative £500. Most businesses that have cash flow problems do so because they fail to look at their financial statements until problems become too much to handle. Even a company that makes a profit can have a negative cash flow because of the lag time shipping out products or when the customer pays and the posting date of the funds.
Poor cash management has a bad effect on many organisations as it could end up putting a profitable company out of business. Without cash on hand, a business may not be able to invest in assets which they may require, such as new equipment and inventory. Profits are good for a business, but are worth nothing if cash is not coming in. This means that the organisation will fail to provide the best service to their customers as they don’t have everything that they may need. This can even affect them in the long term as it can be the reason behind their failure.
New businesses can expect some cash flow problems due to the fact that they still have to build up the reserves needed to cover receivables owed to them. To solve this issue they can consider taking out a loan against business assets - this type of loan costs more because businesses that need secured loans are typically the closest to failure. Another solution is that you can sell assets and then lease them. Lease agreements have you pay for the depreciation of the items, whereas purchasing outright is like pre-paying for the lifetime use of the equipment. However, ultimately you must get products to customers faster if you want to improve your cash flow. Always deposit checks as soon as possible. Request customers pay in cash if possible or at least with a credit card. For suppliers…...

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