Unit 5 Launch to Accounting D1
- Difficulty in predicting costs
- Being overdrawn on consecutive weeks.
- Having excess amount
When the business is overdrawn on consecutive calendar months they should look to cut back on immediate expenses such as insurance, rent, suppliers and employees. They could also increase their product prices to attempt to increase their income as this will be based upon how elastic that product is to consumers, nevertheless the company must get sucked in set up customers will pay a little bit extra to pay for the merchandise as this all depends upon the elasticity of demand. Another option for them to consider, but is very dangerous, is for them to gain more credit from creditors as this may cause them having higher money to invest but will finally have higher interest costs which will be another responsibility for the business in the near future and could become bankrupt if the business enterprise is not on top of your debt.
When the business has too much money in the money flow then they should decide to reinvest this capital they have back into their business to be able to progress their technology, belongings or staff and make their business more effective and efficient. This investment can help the company to move ahead and to have better customer discussion. Also, they could consider adding their money in a savings account, shares or high grade bonds. This action provides more interest on their money and can make it grow instead of it just gathering dust particles and seated there unattended.
The Business's last problem, is the issue in predicting cash flow costs, this will be settled by requesting their sales professionals, doing market research or asking a skilled accountant for guidance. They should ask their sales professionals because they are folks on the shop floor and they'll know happens there, what the customers prefer and what products sell quickly. The sales professionals have first-hand knowledge on the company as they process your day to day dealings and you will be reliable for feedback whereas a supervisor might not always be around. Also, the business doing general market trends can help them find the common prices of all their products such as insurance, this will ensure they'll have the best quote and prevent under predicting the costs for this financial month. Merely to be on the safe area, they may then go and ask an experienced accountant for guidance because they are experts in this particular field and will have the required knowledge on how to spread the overall costs across the chosen time-period.
Now, looking at Alan's business which offers high-end watches and jewellery in their store on the twelve month period, by analysing it we will be in a position to see an example of a cash flow. Alan's market is an extremely expensive one and is a niche market also to get setup as a business is very costly and the money flow scale will be much higher compared to a newsagent's cash flow as Alan has items that cost him more to buy and the incentive for this is they can sell these products greatly higher. However, this action can provide higher risk of Alan becoming overdrawn than the newsagents.
Alan's Final Balances
Taking a look at Alan's closing amounts; it is very decent apart from a month, in the month, September, where he previously a rough time in financial terms. Alan was overdrawn by 2, 878 for the reason that month and acquired received an overdraft interest charge around a further 10% leading to him having a total of 287 divided by 12 which will give him the distinct monthly interest demand which is 23. 98 which is not satisfying for him. This actually isn't so bad if we look at it as another month but if Alan was consistently heading to be overdrawn then this amount would rapidly surge to a much greater sum. The rest of the months in the financial 12 months, he had a wholesome shutting balance which ranged from 332 - 10, 545. Taking a look at the 12 month financial calendar, Alan's closing balance average is 4533. 88 which he should be delighted as this is a secure amount.
Alan's cash flow forecast has a higher number of styles where one of these would be the quantity of drawings he will take out per month. This figure may well not be practical, although being an estimate, as he might be forced to spend more on one month than the other months which will therefore have an effect on him the chance of becoming overdrawn. Also, another trend will be the constant advertising cost rate for your he is becoming incurred which is 175 up until September. It would be sensible for him to invest more on the advertising fee in January as this is after Christmas and you will be an integral where almost all of his acquisitions in the entire year will come from so is a high importance for his sales and gives him a chance to remove the unwanted stock that he didn't sell the prior financial year before. Now judging the cash circulation forecast, Alan may have received a fixed home loan of 950 per month; though is effective for him as though he has a set mortgage loan then he doesn't face any abrupt change in bills that could fast his business losing profits. Moreover, the amount paid on insurance is similar to the clear pattern of the business rates paid out of the company and this is highly similar to the amount paid on insurance. The 'function' (defined as the most frequent amount) of sales for the business enterprise of his is 37, 800 and the setting for cash acquisitions is 27, 000.
Alan's issues with his predicted Cashflow forecast
- Rent income is quite low
- High mortgage loan payment
- High advertising costs in November and December#
- Low sales in August
Causes of the issues within the business enterprise and Alan's Plans
The factors behind the reduced sales in the month August were because of the small amount of stock purchased in comparison to the other months. As there is not a lot of stock purchased this means Alan will only make a lack of sales which lack of money should come from sales and having to pay a consistent amount of money for rent, income, home loan and business rates etc. , having to be paid out, maybe this is the month that was the reason for having an overdraft in the next month in Sept. Inside the month September there is a low amount brought forwards, which was only the total of 561, which made working the business enterprise harder that month.
The high mortgage repayment that Alan confronted probably can't be helped as it is most likely caused by the location of Alan's shop as he has to attract as much customers as he can; in a city centre where the prices for lease and mortgage loan are considerably higher than the outskirts of the city. Alan could have negotiated for an improved deal himself when he first viewed that mortgage deal or also would have looked around the united states for different locations that weren't so expensive compared to the store he presently works but he still has a good marketplace in their portion of influence which really is a major positive for him.
The cause of high advertising costs in the calendar months November and Dec is understandable as when it's the yuletide season then many people are spending to buy gift items for just one another also to market your business ahead of your competitors as it is very important to really get your businesses name out before competition. This in my view is money well put in as Alan has seen the biggest amount of sales in both these a few months which includes helped his business within an substantial way but this doesn't mean he must spend high levels of money on a regular basis. There are various means of advertising that are fiscally cheaper for the business to advertise their products. These can include press releases to interviews with journalists, papers, blogging on multiple online sites and going into radio stations for interviews there. All of these various marketing activities promote Alan's business and it is at a cheaper price.
Moreover, the hire income should be considered an added bonus offer but if you can get additional money from the tenants then Alan soon should take into consideration to improve the income of the lease for his room above the shop. This added amount of income will profit him and he can use this added income for investment into the business, though this will make the current tenant annoyed with this option and the average person may take the option to leave as to find a suitable alternative at a lesser price but there are many individuals across the city looking for flats and this is based in a city centre which is convenient for people to get to work, this added source of income can help out Alan's cash flow and preferably avoid getting overdrawn in the foreseeable future.
In bottom line Alan is doing well to keep up his cashflow and although he was overdrawn in a single month this shouldn't make him be concerned too much. He is still running a good business where it is making a income and he should be seeking to make the business enterprise function well for the a long time.
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