3.5.4: Making financial decisions: improving cash flow and profits

Methods of improving cash flow

-increase revenue
-reduce costs

increase revenue

-raise prices, depends on elasticity of product
-heavily promote and advertising the product increase sales volume

reduce costs

-find cheaper supplier
-increase inventory turnover
-reduce wages
-make redundancies
-delay payments to suppliers

Increase the payable days

so that it takes longer to pay suppliers, cash is more readily available in the business. However, some suppliers may not
accept these terms.

Reduce receivable days

so that customers have to pay sooner and have less credit time, this means that cash is more available in the business,
however customers may not like this and could go elsewhere.

increase profitability

higher prices
reduced costs
sell more goods at current price

higher prices

-promote products/services
-advertising increase
-sales reduced prices

sell more goods at current price

The business could promote existing products and
services or get existing customers to increase their
purchases, to increase revenue
and profitability

Difficulties in improving cash flow

'best guess' of money in flow and out
-prices may decrease
-cost from suppliers may be non-negational
-competitor sctivity

Difficulties in improving profit

-may end up with quality issues
-price increase may lose customers unless loyal or inelastic