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Q. Methods of easing cash shortages?
There are several techniques which can potentially offset the effects of cash shortages. In the long-term nevertheless the adequacy of cash has to be addressed. Therefore for example cash shortages may be alleviated by
- Postponement of expenditure where reasonable. This wouldn't be feasible in the payment of staff wages but might be in relation to replacing an old piece of equipment that is still working
- accelerating inflows. For instance by more effective use of better credit control, credit collection, improved early payment incentives or even the factoring of debt
- Sale of redundant assets either prior to or after any necessary re-organisation. This may engross the sale of a building where accommodation can be centralised. Other assets perhaps sold on a sale and lease-back basis, although careful consideration will have to be given to the net benefits arising from this
- Re-negotiation of supplier terms or else overdraft arrangements. Especially bank debt may be mortgaged or secured to access lower rates. Suppliers may perhaps agree to lower prices or longer terms if negotiated agreements can be formalised such that a certain level of purchases are made over a period of time.
The significance of each item will depend on the degree of flexibility Frantic has in its financial structure and agreements. The room for manoeuvre may perhaps be limited but a thorough review of all possibilities is likely to yield at least a number of options. Moreover the impact of each potential response depends on how efficient Frantic has been in arranging its affairs in the first place. Ultimately none of the items listed will have a sustained impact if the core problem is not identified and dealt-with.
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Evaluate the importance of leverage in financial management of a small scale company
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evaluate the importance of leverage in a small scale companyestion..
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