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Justify actions a business might take when experiencing cash flow problems? At first ,the owners of business need to start a cash flow analysis for current month and the future.The owners should know and find out what’s wrong with the company and check which areas result the most money to get out of their company.However, the receivables are always a big problem.Because the owners are busy with their business so that they forget to send the money for a long time .
Secondly, they can use loan to solve the cash flow problem,they can borrow a great deal of money from the bank or other personal organizations, they can just give these organizations little interest per month but they get a pretty long-term support for the whole business.They should have their own line of credit, regardless of business or personal ,it’s function is similar with the credit cards.The company can have a source of emergency funds in the future as long as it pays long-term attention on building the credit line , which can solve the cash flow problems as well.
Finally, it is important for the business owners to make some changes n operations ,For example ,the loans can not solve the fundamental problem because this situation is serious.The operator should reduce the time between a transaction and when receive the money . The business needs to accelerate the speed of sending it’s produces as well as invoices.In addition to that, the company can use the discount to attract the customer to pay early and enforce the punishment for late payment.
If the customers pay by cash , then they will have cash discount and the point of transactions.Absolutely, the business won’t penalize those people who pay by card and credit card. How to prevent the situation for cash flow problems
As a formal business ,the operator should have a detailed financial book which keep up-to date records on the transaction between business ,customers as well as the suppliers.The company should stop selling if the customer often gives money late or has an outstanding balance.
Evaluate the financial performance and position of a business using ratio analysis? There are Profitability ratio which is looking about the profit of the company ,Liquidity ratio is the amount of cash that the business has available to use and Capital structure ratio which is about the shares and loans of the business .By using the ration analysis,company can see the ratio in the past few year.This can show the business whether improved or worsen .For example,the gross profit margin in the 2011 is 44.5%,2012 it is 42.1% and 2013 is 40.9%.Compare the gross profit margin ,we can see that the business performance is getting worse.As a result business should start to investigate why business performance getting worse. For Gross Profit Mark-up ratio is show in every $100 of cost ,how much was added to arrive at Sales price.The mark up ratio and gross profit margin ratio are reflect to each other.Both of them can show the business current financial performance and position .Also, there is expense in relation to revenue ,if the business revenue increase over time,owner will expect the ratio fall.
For example in 2011,it is 21.3% .In 2012 it is 20.5% and 2013 ,it 19.9%. This ratio can show the business financial performance and position is improved.Lower percentage will showing improvement of business.there is current ratio business is willing to reach 2:1.The business have to make sure it does not increase above 2:1 as this may not be an efficient use of resources.For the acid test ratio,this ratio can let the business know if he ratio is too low,they will have difficulty meeting request from the supplier to make payment .However,if the ratio is too high ,this will cause the business has too much cash or trade receivable.This can reflect the cash flow of the business at the current financial state. The ratio can indicate which part of business doing well while which part of business are going to face problem .
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