Over to You - Chapter 12 - Cash Flow

1) a) 1800+700=£2500
b) 800+200+1200+400+320+80=£3000
c) -£500

2) He is facing cash flow crisis because his cash outflows are greater than his cash inflows by £500, so he has a negative net cash flow. This is mainly due to the amount he is paying his staff, as it is the largest cash outflow, if this is lowered (i.e. he lets some staff go, or reduces wages) he could have a better cash flow position.

3) This will improve his cash flow because it will lower the cash outflows for a period of time. This means that no cash will be going out of the business for that month, improving its cash flow position. The risk is though, that suppliers will refuse to sell any more products until they have paid back all of their invoices. So they would get less products to sell to improve the cash flow position.

4) I think that cutting back on orders of food would improve his cash flow to some extent because, it would mean less food overall would be wasted, as the same amount of orders would be made, so cash inflows would stay the same, but cash outflows would drop. This would improve the cash flow position. However, if this happens, the quality of the meals would drop, as they would use the bad parts of food, that would usually be thrown away, this could cause less repeat purchase in the business because people would not want to go to a restaurant that sells poor quality food, especially if he has a competitor near by that could sell high quality food, so he would lose out and become less competitive. So his cash flow position would get worse as he would have less customers, causing cash inflows to drop.

5) Making staff redundant would be a good way to improve cash flow because it would make cash outflows drop, as he has less wages to pay out. This would improve net cash flow as net cash flow=cash inflows-cash outflows. Although, it is not so good because, his customer service, and quality of the product could get worse, because less staff would mean they would just purely have to focus on making a meal, rather than making it an enjoyable meal, as he will only have a limited number of staff to do this. This would make cash flow worse as there would be less repeat purchase in the business. It is not the best way to increase cash flow, although it could improve it because the idea of having a happy hour, would be a good way to improve cash flow because it would make more people want to go to the restaurant in the hour, so although he will have reduced prices, people will purchase more in there, as it is cheap, and more people will go. This will improve cash flow because it will increase cash inflows. Another way that he could improve cash flow is by saving on ingredients, because this would decrease cash outflows, as if it orders fewer amounts of stock, it will be an instant decrease in outflows, and they could start using a just in time method of stocking, and this could act as a one off method of improving cash flow. Overall, I think the best way of improving its cash flow position is by having a 'happy hour', as it would act as a destocking method of improving cash inflow, and has little risk to it. It will also make people realise the restaurant more, and use it more often, so it could also work as a method of advertising.