Finance: Dealing with a Cash Flow Problem (GCSE)

The best way to improve cash flow is to get reliable up-to-date cash flow forecasts. This provides information that highlights key cash flow issues

Cost reduction - It is the most important way to improve cash flow so far. If it seems difficult enough, each company can decide on savings which is not important. Due to the recent credit crunch and economic downturn, companies have been able to take drastic measures to reduce administrative and other costs, thereby proving that cash outflows decrease as soon as possible

Reduce inventory: Reduce the amount of cash generated by purchasing and storing raw materials and products for resale. This may be done by (a) ordering fewer inventory items from suppliers and / or (b) offering discounts (ideally cash) to encourage customers to purchase shares it can.

Delaying payment to suppliers - Although it is a dangerous game, it is widely used in business. Enterprises can reduce cash expenditure by increasing the time to pay the arrears (however, there is a possibility that the relationship with the supplier may be compromised).

Reduce the credit period provided to customers - it is easier than done. Companies can accelerate their cash flow by requiring customers to pay for their purchase price sooner. However, there is no guarantee that the customer will agree. You may need to get a financial return, such as instant payment discount.

Reduction or postponement of expansion plans - Many of the largest cash expenditures occur when the business expands (eg, opening new offices and stores, adding production lines and factories, etc.). By delaying this expansion, you can protect cash in a short time.

A mature company continues to grow and plans a plus cash flow normally. They often increase debt to cover operating expenses and support the company's cash flow over a longer period of time. Equity finance is opportunistic and is devoted to capital investment. In other words, it is the specific nature of stock purchase. On the other hand, startups rarely add cash flow and generate a lot of revenue. Therefore, debt is not usually a choice, the only way to fund startup growth is by equity investment. Therefore, the use of capital is mainly used for operating expenses, achieving milestones leading to further investment rounds.

Traditional equity investment usually invests in business generating cash flow. The company's cash flow provides funds for operating expenses. With a solid balance sheet, they can earn debts to raise working capital. These project procurement funds are mainly used for capital investment. Therefore, stock investment is irreplaceable within the company. Venture capital usually invests in startups that do not generate cash flow. Startup can only procure OpEx through equity. Given that they do not have a solid balance sheet, they have limited funds to raise working capital. These start-ups have low capital expenditure requirements, and usually do not raise funds for capital expenditure. The only capital that can be used to fund the entire project is capital. Therefore, equity investment must be interchangeable within the startup

Due to the nature of the business, the cash flow from the business is often negative in early start-up companies. Operation and service development is usually done through equity finance and debt finance, or a mezzanine tool (the first two combinations). It is also common to use R & D loans (such as Tekes). The important thing about shares is that they have the right to share shares when they are registered in the business registry and must pay the capital stock before registration. In fact, this means, for example, that shareholders receive voting rights and profit sharing rights after registration. It is worth mentioning that the rights of different series stocks may be different. As for the founder's ownership, we recommend that you consider the validity of the taxation of the ownership structure early (eg before the investor's participation).