Future Fashions

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

The business Future Fashions is likely to experience problems due to their payments exceeding the amount that is affordable looking at the receipts. Future Fashions should consider making a change to the Cash Flow Forecast if they want to succeed and be running for a long time. Future Fashions needs to realise that over 70% of businesses failing within their first year; cash flows are the main reason that businesses fail therefore it is vital for Future Fashions to ensure that they have an adequate cash flow.

1. Opening Balance – This is the balance that business starts of with and the initial investment that they make at the start of the business so they are able to operate and essentially make sure that the investment fulfils the requirements of the business.

2. Receipts (Inflow) – This is the money that the business make through sales however it could be that one month they received the loan that they required. The higher the amount receipts the safer the business will be so they can have more money to bring to the next month or spend on things that they need.

3. Total Receipts (Inflows) – This is the total amount of receipts that the company received in a month meaning it is the opening balance and the receipts added together to give a total receipt this would be the money in the business (Inflow)

4. Payments (outflow) – This is the money that is going out of the business; the money that the business is spending on things which are essential like heat, lighting and rent however it can be things like new equipment which the business may not need essentially but would make better products/services.

5. Closing Balance – This is the money that the business finishes with it can be a minus

Or it can be positive depending on how they spent their money.

For a business like Future Fashions which is just starting up and it is not considered that there is a high demand for the products that they are selling so if they keep it to the bare essentials the will be safe and secure if they don’t it will mean that they can potentially go bankrupt.

The problems that affect a cashflow are:

1. Too Many Debtors – Too many debtors is not a very good thing for small businesses because if they have too many they lose control of them and this usually results too late payments or not paying at all. Future Fashions need to ensure that they control the debtors so that they pay on time. For example Future Fashions’ debtors would be the customers buying their product so if a customer wants to may in instalments Future Fashions needs to ensure that they enforce the right discipline so that they do not have late/non-payment.

2. Too many creditors – If Future Fashions make too many creditors and are not able to pay them back because of late/non-payment form debtors so to survive they need to make sure that they get paid from their debtors and are able run smoothly and not go bankrupt due to debtors not paying them meaning they can’t pay creditors.

3. Over Financing – If Future Fashions borrow too much than is required there will be high interest payments therefore they will not be able to pay it back and eventually go bankrupt therefore they need they need to ensure that they only borrow the amount that they essentially need for equipment and too pay rent; they need to search for a low interest lawn due to them being a new business they cannot afford a high interest rate.

4. Over Trading – Future Fashions should not take on more work than they can handle and that finances are available to them. They should not take on lot of work and work that they simply do not have the equipment to make for example a sign might be too big and may require a more advanced machine therefore if they accept too make it and are not able to deliver it would look bad on them and ruin their reputation.

5. Over Investment –Future Fashions need to ensure that they invest the bare essential they to operate they shouldn’t invests in assets that will not make them a sufficient amount of money and at least break even therefore they need to choose very carefully what king of equipment they need due to them being a new business they shouldn’t buy any equipment they do not need for the first year at least not that equipment that would make them go into overdraft.

6. Holding excessive stock –If they hold excessive stock that will just tie up many which could be used to pay the rent and the essentials and it being tied up in stock means that they will not have money if they needed for example one month they can’t pay rent.

7. Changes in demand – This is a big danger to any businesses particularly Future Fashions because of the product that they are doing this may be a big danger because they may get a rival company who can do electronic signs and digital signs whereas Future Fashions only have the equipment to do normal signs. The demand for their product may change and this would impact the cashflow.

During the month of July the closing balance was at -£50.00. The figure was negative because the firm had spent £14000.00 on shelves and railing, resulting in Future Fashions spending more money than their opening balance which was £13700.00. Future Fashions total outflows for the month were £25250.00 hence causing a negative closing balance. This resulted in Future Fashions not paying their suppliers, which led to them having to take a loan.

During the month of August Future Fashions had a negative opening balance. Future Fashions had a positive closing balance of £680 because they had not bought any equipment. During this month Future Fashions did not suffer any kind of negative balance, instead they had an overdraft of £5.00.

During the month of September the opening balance was positive. Future Fashions spent a total of £3350 on new computer equipment and heating and lighting. At the end of September, Future Fashions closing balance was -£1755.60. It was negative because the total cash available to the firm was £13118.40 however the total outflows turned out to be £14874.00. This meant that Future Fashions had overspent and the negative balance was quite much, risking the business to go bust. The owner of Future Fashions could find themselves in difficulties as they were not able to pay the suppliers, resulting in Future Fashions taking out a loan to keep the firm running.

During the month of October Future Fashions had a negative opening balance. The total cash available to them was £11180.34 but they spent £12010.52 on outflows. During this month Future Fashions closing balance was -£830.18 even though the business had not bought any kind of equipment. The reason for this was because the business had a negative opening balance at the beginning of the month which meant that October was not a good month for the business. Future Fashions had an overdraft of £175.56 during this month which damaged the reputation of Future Fashions.

During the month of November, Future Fashions opening balance was negative. Future Fashions balance was £12623.19 and the cash outflow was £12241.37 resulting in Future Fashions having a positive closing balance of £381.82. Future Fashions did not buy any equitment which meant they had a positive closing balance by for Novemeber.

During the month of December, Future Fashions had a positive opening balance. The total cash available was £14373.33 and the total outflow was £12994.69. The business had spent £500 to pay for lighting and heating which left them with a closing balance of £1378.64, hence the business did not have any negetive balance by the end of the year.

Tagged In :

Get help with your homework


image
Haven't found the Essay You Want? Get your custom essay sample For Only $13.90/page

Sarah from CollectifbdpHi there, would you like to get such a paper? How about receiving a customized one?

Check it out