Cash flow problems
Reasons cash flow problems may occur
- low sales
- too much money tied up in stock
- customers taking too long to pay their bills
- suppliers not allowing creditWhen a good is received but not paid for until later. or a limited credit period
- owner taking too much money out the business, this is also known as drawingsMoney taken out of the business by its owner.
- over-investmentMoney or capital put into a business for profitable returns, for example interest or income. in new assets such as machinery or equipment
- an increase in expenses
Impact of cash flow problems
- unable to pay suppliers meaning stock is not delivered and production stops
- may need to find a cheaper supplier which may reduce the quality of products
- costs may increase due to interest on any extra funds borrowed
- no money to invest in future growth
- owner may need to reduce their drawingsMoney taken out of the business by its owner.
- may have to offer discounts to increase sales
- unable to pay expenses
- may need to sell unused assets or make staff redundant
Glencoe Mountain Resort provides a case study of how a business can deal with cash flow problems.