Question-   Ways to Improve Cash Flow

Solution-

1-Prepare a cash flow forecast. Remember that Priti and Simran have no experience in producing cash-flow forecasts, so they have forgotten some crucial items shown in the case.

 

 

June

July

August

September

October

November

Cash in start

50000

31450

28450

23900

20400

18100

Sales

16000

22000

25000

27000

28000

30000

Costs

 

 

 

 

 

 

Rent

-3500

-3500

-3500

-3500

-3500

-3500

Bank Loan Payment

-5500

-5500

-5500

-5500

-5500

-5500

Insurance, Rates etc.

-2500

-2500

-2500

-2500

-2500

-2500

Variable Cost per customer

-4000

-5500

-6250

-6750

-7000

-7500

Staff  Wages

-2500

-3000

-3000

-3000

-3000

-3000

Equipment

-8000

0

0

0

0

0

Marketing

-1000

-1000

-1000

-1000

-1000

-1000

Project Raw Materials

-3500

-3500

-3500

-3500

-3500

-3500

Legal and Accounting

-1450

0

0

0

0

0

Suppliers Salaries

0

-2000

1800

1800

1800

1800

Other sundry costs

-600

-500

-500

-500

-500

-500

Priti&Simran Payments

-2000

-2000

-2000

-2000

-2000

-2000

Net cash flow

-34550

-25000

29550

30500

30300

30800

Cumulative cash flow

31450

28450

23900

20400

18100

17300

 

 

 

 

 

 

a-Considering your cash flow forecast, what advice would you give on how to improve their cash flow position? Justify your advice.

 

Cash flow tables are of great importance to start up business in terms of every

entrepreneur. A cash flow table which is prepared well shows us a small business to succeed

or not. To talk about a successful business is of great importance that the cash flow table

contents positive figures. And also, it shows that it is successful sustainable the business. If the

cash flow shows the tragic statistics, we can talk about the crisis, which is threaten lost of

liquidity in terms of sustainable for a business. It is no doubt that the cash flow needs to

contain positive numbers to sustain the enterprise's success with more investment.

( Lamont, 1997)

           When we examine the business which is planned to establish by Priti and Simran, the

situation is a little bit different and confused. Although the cash flow figures seem positive at

the beginning, they have problems not to sustain for their business in long term. Significantly,

there have been missing costs in their cash flow. So they have planned less sales rate than the

way it should be. Because of this reason, they have to increase their sales rate of their products.

 For this reason,It is logical that Priti and Simran should not start up this business with these

cash flow data.  First of all, when we consider the limited budget and using a significant amount of bank

loan, they have to increase their target customer. They should establish a more comprehensive customer network

using advertisements.And also they should this by cheaper ways. Using social media and online

advertisement channels seem more logical in terms of the limited budget. By this way, their business

 can be sustainable. Otherwise, it is so challenging to be existing in the fashion market for a long time.

b-Priti and Simran think that they need to borrow £50,000. Do you believe that this is the right amount of money to borrow? Propose what amount you think they need to borrow and justify this with data from your cash flow forecast.       

           It is of great importance building logical credit for the future. If the enterprise doesn't

 have any good loan history, It can not evaluate well the business opportunities which face

sustaining existence of its.Paying a regularly small amount of loan will regularly

establish the big loan in the future. Entrepreneurs should be careful here. Payments should be regularly

and on time for your small loan. Even a late payment can cause no to get chance for future

finance. If  the loan is used, it should be for purchasing equipment, talents, new ideas and

good business opportunities.(Bates,1990)

            When we examine the situation of  Priti and Simran, they will use the loan for starting

up a business in the fashion sector as a design company. This is an exceptionally good aim to use loan.

 But they have done some mistakes while establishing a cash flow forecast. They couldn't

consider adding some costs in the cash flow. In my opinion,  the loan which they plan is not

enough for the business. When we examine the cash flow, the first two months seem to cover the

costs.But it is just a bank loan effect which is used. They couldn’t estimate such as less the mont

hly sales rate. Because of this reason, they need to loan more than 50000. The  loan amount  should be 

85000. And also, They need to find out effective marketing strategies to reach target customers

and have to increase their sales over  %30 percent. And they should learn all costs to do good

cash flow for the business in the fashion sector. Besides, They need to find ways of effective

advertisement.

For example, they can do an advertisement as online. They can use social media effectively

in the advertisement. This is the best way to decrease advertisement costs.

2- Priti and Simran need to develop a marketing plan for their fashion store. Propose how they can apply the marketing mix (4Ps) to their new business venture

 

The creation of effective marketing strategie is of great importance  in order to be

successful at the competitive market in terms of every business. The most important thing

that is to obtain sustainable success in the market is using the 4P marketing mix.

It is known that the 4Ps of the marketing  mix  is determined as the  price, product, promotion

and place which play critical roles in establishing a successful marketing strategy.

            It is of great importance that determines a price for the product  by taking  expectations of  the competitors and customer into consideration.

            It is of great significance for the companies  that to establish their location providing

easy access to the  market where their target customers are and  present  their products  that is

superior to the other similar int he market.

            Finally, it is crucial that present and makes attractive their products by using

effective advertisement ways for companies.(Goldsmith, 1999)

            when we think the effective ways of advertisement for Priti and Simran, we can see

that they have a limited budget than they need. So they have to find out the most effective

advertisement ways according to their account.

For that reason, it seems that they can choose an online advertisement as the Cost of

advertising is slightly cheaper than TV or fashion magazines. And also, It is of great

importance that they reach more customer to increase their sales rate when considering

negative figures  in their cash-flow. They can start up the business the place where has more

potential customers and suppliers so that they can also increase their sales rate and figures. 

 

 

 

 

The fashion business is global and managing its supply chain involves several ethical issues.  Consider the ethical issues that Priti and Simran’s business might face concerning the supply chain and propose what Priti and Simran should do about these?

 

The fashion business is global and managing its supply chain involves several ethical issues.

Mostly, it targets that examines the main barriers to ethical fashion consumption. The

sector content of fashion has significant global supply chain complexity. It becomes the

variety of impacts and challenges across the supply chain from raw materials to design

manufacture, packaging, logistics, consumer use. Because of this reason, the sector is

sensitive to the supply chain. Especially when  we consider current stiff competition, intensive 

resource use and the  exposure of  penurious labour conditions  in terms of sustainability in

some regions.

            In the fashion industry's supply chain, especially within the designs' scope, they are

partially ethically vulnerable. Firms can put some obstacles in the supply chain to protect their

designs. Similar obstacles apply to both company employees and supply chain employees.

The protection of designs is of great ethical importance in terms of sustaining the activities of

the companies.(Roberts, 2003)

            Priti and Simran should care some rules such as not overcharging the customers or

stealing customer from the competitors  in order to operate a fashion business. And also, it is

important that they find out an ethical pricing strategy that will not affect badly  the balance in

the market. Besides they have to care competitors' designs.So they have to create  different

design than their competitors.And they should protect their own design  in ethical borders.Most

important issue is to follow Corporate Social Responsibility guidelines such as protecting  the

 environment  to be  ethical towards the  environment  and  society.

            It is no doubt that a company will be  sustainable,if they do all of the ethical rules.

 

  1. Explain any other problems that you think Priti and Simran may have when setting up their business and whether you believe that their business idea can be a success.

 

When we examine carefully the case study of Priti and Simran,their planed enterprise

seems risky, and hopeless for the  future. They should reconsider their plans  about  start-up

the business. First of all, I think that  their cash-flow prediction seems  not  enough for their

initial investment  the  costs of the  company to cover. And also, their aimed monthly sale figures

are far from covering their monthly fixed costs for future,although it seems to cover at the

beginning. Because it  is effective of the  bank loan that is  used to cover  the costs  at the

beginning. This effect is decreasing  month by month. Their sales rate is approximately around 

%13.5 percent. Even though this rate seems enough now, they have to review their sales rate

again. Their  cash flow is  limited for the advertisement

They should sperate their  cash of  big amount for advertisement  to reach targeted customers.

            In addition, they should focus on 4Ps, and find out most effective ways  to use them

in the  markets.And also,  we understand that they don't  have  an idea about tax system and  the 

role of competitors in the market. Before Priti and Simran start up the business, they should  do

more market research.If they don't do anything to increase their monthly sales rate, It seems

that their business is  going to be unsuccessful.

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