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Accounting Case Study Questions. BUSHRA'S BUSES - Cash flow forecast

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Introduction

´╗┐Task 1A BUSHRA'S BUSES - Cash flow forecast July August September October November December INCOME 20,000 20,000 18,000 16,000 15,000 15,000 EXPENDITURE Fuel 1,500 1,500 1,400 1,300 1,300 1,300 Insurance 1,000 1,000 1,000 1,200 1,200 1,200 Maintenance 2,000 2,000 2,000 3,000 3,000 3,000 Rent 1,800 1,800 1,800 1,800 1,800 1,800 Wages 12,000 12,000 12,000 12,000 12,000 12,000 Total Expenditure 18,300 18,300 18,200 19,300 19,300 19,300 Net Cash Flow 1,700 1,700 -200 -3,300 -4,300 -4,300 MONTHLY SUMMARY Opening Bank Balance 10,000 11,700 13,400 13,200 9,900 5,600 Net Cash Flow 1,700 1,700 -200 -3,300 -4,300 -4,300 Closing bank balance 11,700 13,400 13,200 9,900 5,600 1,300 Task 1B A, Suggest why the amount for fuel decreases over the period The main reason for the fuel decrease over the period is simply that where is the business is seasonal the amount of income decreases after the summer months. When the summer months end the amount of holiday tours start to recede. It is obvious that the fewer coach tours that operate require less fuel to function. This is clearly shown in the spread sheet as the income for the months from September to June start to decline and is reflected in the increase of fuel expenditure. B, Suggest a reason for maintenance costs rising in the autumn. ...read more.

Middle

As rent is a fixed cost it is not possible to change this but where wages is concerned it is considered to be a variable cost so can be changed. Where the wages expenditure remains the same at £120000 per month throughout the year it would be a logical step to hire some temporary staff. This would give the company the option to control its wage bill by only hiring staff when needed thus reducing the wage costs. The company will need to implement various credit control measures to ensure the smooth and profitable running of the business. To achieve positive and dynamic results she should implement the following. Cary out appropriate credit checks on her suppliers to ensure prompt and correct payment. This is vital to maintain a constant and smooth cash flow. As well as credit checks the option to give a reduced price for prompt payment as will benefit Bushra as it will give an incentive to pay on time and will give a good indication of the financial stability of the business which she is trading with. This would also be beneficial if the company can quire this arrangement with their suppliers to reduce their own expenditure. The introduction of a maximum credit limit of £1000 per customer with a 30 day credit would help stabilise the cash flow where customers are involved. ...read more.

Conclusion

A profitable business can go bankrupt for many reasons mainly because you are not doing and adequate job of controlling your expenses. This can mean you are spending more than you have coming in.If the amount that you are spending is more than you are making you have a problem that needs to be addressed. You have to know that you have a problem so that you have time to solve the issue before it is too late. Another issue is the late or non-payment of customers this can ultimately halt cash flow and stall the business from progressing. Where in many instances payment is not received until months after the product or service is delivered a continuous smooth credit control system is essential. Where Bushra’s cash flow has decreased from £11700 to minus £11700 over six months this is clearly due to the mismanagement of expenditure. The fact that the company spent unwisely shows that even a profitable business cannot continue to operate at this level. The failure to allow for an £3000 extra expenditure in maintenance in one month shows that the failure to control budgets is vital to a successful business. Budget planning is at the core of any profitable business. In the case of Bushra’s rival companies failure allowing more opportunities to her business she could use this as a vital tool for her business survival. In regards to the firms approaching her being unknown the answer is simple. ...read more.

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