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Cash Shortages

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Submitted By PraTer0505
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Cash shortages have caused many small businesses to go into financial ruin. This is a result of entrepreneurs not fully understanding the concepts of cash management. Every small company is vulnerable to cash management issues when they are in the beginning stages of life. My proposed small business will be no different. The greatest cash management problems I expect to face in my business involves collecting (accounts receivable) and disbursing.
My proposed small business is a crisis management firm. The company will be primarily service based. This means that most of the cash that is brought in will be dependent on clients paying for the services we offer. Launching this type of company can be a bit of a challenge. Crisis management firms obtain customers based on public awareness and references that help them build reputations within the industry. As a new company, this type of promotion may be difficult to acquire if connections are not established prior to starting the business. Due to this lack of established dependability and familiarity, prospective clients may seek counsel from firms that have settled into the industry for their specific issues and needs. To combat this problem, I’ll probably have to sell my services under some form of credit. My proposed credit policy specifies that the client will pay a small portion (10%) of the service cost prior to any work that is performed. The remaining cost will be collected once services are completed. The factor of this dynamic of cash management that would cause the most harm to my cash flow is the time it will take my clients to pay on their accounts. I could have a very effective credit policy in place, but slow-paying clients and those who don’t pay at all can still pose a threat to the firm. A high volume of cash will be utilized on the services provided to clients. If certain clients are not paying their remaining balance, it leads to more cash going out than coming in. This struggle with collecting accounts receivable has the potential to ruin the business if procedures are not put in place to boost cash flow by attracting clients that do pay on time.
Cash disbursements . It may be cheaper for companies to design in-house training methods because they have the necessary capabilities to create their own development programs. Outsourcing these skills and human capital from the external labor market requires organizations to collaborate with firms that may use capabilities more advanced than in-house producers, proving to be more expensive. Similarly, with suppliers, if they are not capable of creating abilities and talent that are efficient for organizational use, then companies may choose to “make” their own. Lastly, “making” is a good idea for organizations seeking to protect their ownership over training and development capabilities that they have created. Organizations that use outside sources to develop skills and talent leave their innovative training methods open for other firms to use. Therefore, “making” allows organizations to guard their self-made technology and development efforts. In contrast, organizations may choose to “buy” skills and talent if they lack the knowledge to produce their own training and development programs. External sources may be the only plausible option to select due to a lack of expertise. Additionally, the quantity of talent required may be small; resulting in organizations “buying” from the external labor market using the staffing function. “A company may consider outsourcing products with low-volume demand” (Bremmers, 2004, p. 66). “Buying” is also a good idea for training and development because the external labor market gives companies numerous access points to skills and human capital whereas “making” would only give them access to their own resources. In terms of skills and talent not being essential to an organization’s strategy, perhaps “buying” human capital externally reduces company spending on in-house training.
With regards to creating and executing training, the same factors apply. Conditions in which “making” is a good idea include lower costs, unskilled suppliers, and the need to protect technology created by organizations. Another condition in which “making” is a better choice for creating and executing training is the increased assurance of constant supply. Firms that design or conduct their own training programs with internal sources can maintain those sources for future use. With “buying,” firms run the risk of losing external sources if the external labor market begins to shrink. In reference to the “buying” side, the conditions for selecting this choice can be the same as “buying” staffing and training. This includes lack of expertise, small volume requirements, multiple external sources, and the chance that the item is not essential to the organization’s strategy. Additionally, organizations may choose to “buy” training materials and training delivery based on brand preference. Outside sources may produce training materials in a certain way that companies cannot find anywhere else. As a result, organizations may collaborate with these sources instead of in-housing training.
The “make-or-buy decision” deals with firms deciding whether they will utilize internal sources (“make”) or external sources (“buy”) in regards to acquiring a product. Both sides of the decision have its benefits and drawbacks. Additionally, each approach can be used by organizations. Therefore, firms need to identify what they want to gain before choosing a side.

References
Bremmers, H. J. (2004). Dynamics in chains and networks. Netherlands: Wageningen Academic.
Make-Or-Buy Decision. (2013). Investopedia.com. Retrieved from http://www. investopedia.com/terms/m/make-or-buy-decision.asp#axzz2Mda8nQPK

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