Negotiating terms with creditors: Creditors are people or businesses that a business owes money to, normally because goods or services have been bought on credit as opposed to cash purchases. A business with cash flow problems could try to negotiate a longer payment term with its suppliers for example, an increase from 30 days to 60 days. This would slow down the flow of cash out of the business. A negative effect of this However may be the loss of any discounts offered for prompt or early payment.
Reviewing and rescheduling capital expenditure: Reviewing and rescheduling capital expenditure is when the owner or manager could review what cash flows were being spent on. Such a review might identify areas of expenditure that could be cut or postponed. It is difficult to do this if the expenditure is on revenue items- for example, replacement stock-but more achievable if it is capital expenditure. A business could, for example, postpone plans to replace machinery or buy a new van.
Cash flow highlights:
In the month of July, the closing balance was -£50.00 which was negative that was because they spent £14000.00 on shelves and railings. This meant that they spent even more money than their opening balance which was £13700.00. Their total outflows were £25250.00 in the month of July which led them to a negative closing balance. The owner of the business spent more than they even had in the business. The business spent £14000.00 on the shelves and railings; they knew they were going to spend this cash so they could have done overdraft agreements which meant that banks would offer overdraft facilities to them through this period when their cash flow was negative. In this month the owner could have negotiated terms with the creditors. They could make agreements that they will buy shelves and rails but they won’t pay them all the money in this month. They will pay them during the upcoming months in certain amount of cash. The owner of the business should have had calculated it before. He should have had seen his cash available and then spent money according to that.
In the month of August the business had a negative opening balance. They did not spend any money on any other equipment due to which the closing balance was positive as £680. In this month they did not face any sort of negative balance. They had an overdraft of £5.00. If the business had the overdraft agreement then the bank would have given them the money which they did not even have to pay back. This could sort their cash flow problem for them.
In the month of September the opening balance was positive. They spent £3000 on computer equipment and in the same month they also spent £350 on light and heat. By the end of the month their closing balance was -£1755.60 which was negative that was because the total cash available to them was £13118.40 but the total outflows turned out to be £14874.00. This meant they spent more than they had in the business. The negative balance was a lot. This could have taken the whole business in great loss. The business should have negotiating terms with the creditors so that they pay them later. While purchasing the computer equipment they could make an agreement with the creditor that they won’t pay them straight they will pay them during certain time limit which meant that the money would not go out of the business there and then. The owner could even review the capital and then decide if they should spend or not because during the month the cash inflow was £12438.40 and the cash outflow was £14874.00 so they should have not spent that money. If they had reviewed capital expenditure it would have helped a lot and there would have not been a negative closing balance of £1755.60.
In the month of October there opening balance was negative. The total cash available to them was £11180.34 but they spent £12010.52 on outflows. Although they did not spend any money on any sort of equipment but still the closing balance was -£830.18. This was due to the negative opening balance in the start which perhaps meant that this month was not a good month for the business. The business even faced £175.56 as an overdraft. This could put down the reputation of the business. In this month overdraft agreement could help them a lot because the business was continuously facing negative closing balance from last month. The bank could help the business cope with the loss going on and it would help the business do well. Good contacts with creditors could help the business a lot as this was the time when the business was not doing well so if they had good contacts with the creditors, the creditors might tell them to pay them with few of these things later or they might help them and lend them some money so they can cope with the expenses in the business and later when the business is in the state of returning them back the owner can return the money back to them.
In the month of November the opening balance was negative. The total cash available was £12623.19 and the cash outflow was £12241.37 which led them to a positive closing balance of £381.82. They did not spend any cash on any equipment which showed them a positive closing balance by the end of the month. The business faced £83.01 as an overdraft. The bank could help the business through the overdraft agreement if the business had made any.
In the month of December the opening balance was positive. The total cash available was £14373.33 and the total outflow was £12994.69. They spent £500 on light and heat but still ended up with a closing balance of £1378.64. This meant that by the end of the year the business did not have any negative balance. The business did well over the year.