I will be analysing cash flow problems a business might experience while referencing to the twelve
month cash flow forecast.
There are many type of cash flow problems a business could experience such as their payments being
too expensive which causes them to have less cash inflow because the money coming in will have to be
used to pay the payments which leaves the business with less money. Also if the business payments are
too high when the payment is subtracted from sales that leaves the business with net cash flow which
can be high or low depending on the amount of payment that needs to be paid. Also when a business is
not making enough sales they will not make enough money which means less profit and if they get into
debt they will find it difficult to pay the debts and if they take out a loan to pay the debt then they will
be in more debt.
Debt is a cash flow problem because when a business owes debt it causes issues such as less profit, no
investors and no trust in terms of the suppliers. Which means when debt is owed and there is less profit
due to this, then the business will have to try and make more sales to solve this issue which could be
advertising more which is costly and lowering prices of products which means even less money will be
coming into the business. When debt is owed, for example to the supplier it decreases trust which
means the supplier could provide less stock to the business, not do business with them or increase
prices; which mean’s the business will have to find a new supplier which could be more expensive and
that will also leave them with less profit. Also unexpected expenses can cause cash flow problems
because if the business does not have enough money for that expense they will have to pay it in order to
keep the business running for example if a machinery destroys or a staff resigns , the business will have
to buy new machinery to keep the business running and recruit and train new staff which is costly.
Another cash flow problem is when a business spends more than they earn and this will leave them in
more debt as they are spending more than they earn which means they are borrowing. This can occur
due to low sales and high expenses. For example if a business spends £3000 in a month on rent, stock
and wages and they only make £2000 in sales this causes a negative in terms of cash inflow.
When business allow customers to buy on credit this is good because it brings in more sales however
when the business allows the customer to buy too much on credit is not good especially when the
business needs the money quickly. Also when the customer takes long to make payment, this leaves the
business with less money and this is bad especially if they have debts and expenses to pay, they may
need to make a loan which will leave them in debt.
When businesses make investments, they usually invest an high amount of money in order for them to
make a high gain however it does not always go well and if a business makes a bad investment this can
cause cash flow problems because they will need to try and gain that money back through sales and
they may not be able to pay debt because of this and it can also leave them with no opening balance for
the month or a low one especially if the net cash flow is low in that month.
Low profits can cause cash flow problems because when profits are low it will be difficult to pay debts
and if the profit is low the opening balance will also be low for that month which gives the business less
money to spend on stock and new ideas. Also making low profit will leave the business with less cash
month cash flow forecast.
There are many type of cash flow problems a business could experience such as their payments being
too expensive which causes them to have less cash inflow because the money coming in will have to be
used to pay the payments which leaves the business with less money. Also if the business payments are
too high when the payment is subtracted from sales that leaves the business with net cash flow which
can be high or low depending on the amount of payment that needs to be paid. Also when a business is
not making enough sales they will not make enough money which means less profit and if they get into
debt they will find it difficult to pay the debts and if they take out a loan to pay the debt then they will
be in more debt.
Debt is a cash flow problem because when a business owes debt it causes issues such as less profit, no
investors and no trust in terms of the suppliers. Which means when debt is owed and there is less profit
due to this, then the business will have to try and make more sales to solve this issue which could be
advertising more which is costly and lowering prices of products which means even less money will be
coming into the business. When debt is owed, for example to the supplier it decreases trust which
means the supplier could provide less stock to the business, not do business with them or increase
prices; which mean’s the business will have to find a new supplier which could be more expensive and
that will also leave them with less profit. Also unexpected expenses can cause cash flow problems
because if the business does not have enough money for that expense they will have to pay it in order to
keep the business running for example if a machinery destroys or a staff resigns , the business will have
to buy new machinery to keep the business running and recruit and train new staff which is costly.
Another cash flow problem is when a business spends more than they earn and this will leave them in
more debt as they are spending more than they earn which means they are borrowing. This can occur
due to low sales and high expenses. For example if a business spends £3000 in a month on rent, stock
and wages and they only make £2000 in sales this causes a negative in terms of cash inflow.
When business allow customers to buy on credit this is good because it brings in more sales however
when the business allows the customer to buy too much on credit is not good especially when the
business needs the money quickly. Also when the customer takes long to make payment, this leaves the
business with less money and this is bad especially if they have debts and expenses to pay, they may
need to make a loan which will leave them in debt.
When businesses make investments, they usually invest an high amount of money in order for them to
make a high gain however it does not always go well and if a business makes a bad investment this can
cause cash flow problems because they will need to try and gain that money back through sales and
they may not be able to pay debt because of this and it can also leave them with no opening balance for
the month or a low one especially if the net cash flow is low in that month.
Low profits can cause cash flow problems because when profits are low it will be difficult to pay debts
and if the profit is low the opening balance will also be low for that month which gives the business less
money to spend on stock and new ideas. Also making low profit will leave the business with less cash
