Cash Flow Problems

Cash Flow Problems

Introduction

While all business owners cherish the hope of never knowing financial problems, in fact, most of them are facing financial pressures at one time or another in their lives. This paper aims to facilitate the diagnosis of a cash flow problem and the choice of remedies. Regarding diagnosis, the sooner it is set, the better. Early diagnosis allows more time to make decisions and allow considering a wider range of solutions.

Most operators are alerted when cash began to fail. It becomes increasingly difficult to meet the commitments in the short to medium term. It may be a temporary problem (a bad season, for example) called for to reverse sooner or later, or a more serious and more persistent.

First and foremost, we must determine whether the problem is short or long term. The distinction is crucial. The long-term problems require them to adjust the shot, otherwise endanger the survival of the company (Simon, 2001).

Analysis of cash flows

Here are three steps necessary for the diagnosis of cash flow problems:

Step 1: Determine if the problem causing the lack of money is temporary or permanent.

Step 2: Calculate the net assets of the company.

Step 3: Find the main cause of the problem of cash.

Once the scan is complete, the solutions are easier to find.

Step 1 - Determine if the problem is temporary or permanent

Ability to service debt

This section can realize if we will be able to meet its obligations for the coming year. It must be considered both an optimistic outlook and a pessimistic outlook. While everyone wants things to go well, you should always prepare for the worst. The worksheet on the ability to service debt summarizes several key elements of financial information (Silver, 1997). Various documents will probably be found to establish:

the amount of receipts and disbursements;

income from other sources and the contribution of owners-res;

personal withdrawals, the amount necessary to cover personal expenses or subsistence and income taxes payable;

provisions for acquisition of assets, which could match the depreciation value or an estimate of funds needed during the year for acquisition of property-tions.

Include the value of marketable stock in inventory in the calculation of expected payments and the value of marketable stock to be stored.



Step 2 - Calculate the net assets of the company

An operator who knows the value of its net assets in the company (its equity) is able to judge the suitability of it to survive a cash deficit. A cash deficit that persists eventually reduces the amount of equity. Operators who hold substantial equity in the company are able to withstand more severe cash flow problems and of longer duration, because they can use their net assets as leverage for refinancing. In contrast, farmers who have little equity in the business do not have that option, which exposes them to far greater risks.

Operators who know their net assets may determine in advance how much they wish to leave invested in the company. This is important, because the value ...