Business accounting Essay

M1: Analyse the cash flow problems a business might experience. For this task I will be writing to Alan Hall with an analysis of the problems in his cash flow statement. Dear Mr Hall,   I have made an analysis of your cash flow statement and am writing to you to inform you about all the problems I have identified Trends on the Net Cash Flow balances There are many trends within the cash flow statement such as the constant increase in advertising rates of  £175 up until September where it increases. It was wise to increase it more in Christmas, but this should’ve carried on into January as it is a new year and a time to sell off any stock that may have remained. The other problem I have identified within Alan halls cash flow statement is the Mortgage, which is fixed. This was wise to keep fixed as the business may not be able to afford any changes that may lead in an increase in cash outflow. I have identified a problem in thewages; the wages has increased twice In June. Both were increased in June, once by  £400 in the wages. The additional wages were increased by  £750, which makes a total of  £1050 increase in June which may be due to growth in employees. Most expenses are fixed such as rent, the expenses such as purchases and Advertisements are only rising immensely hence causing the closing balance to be negat ive despite the continuous rise in sales. The purchases are the main expenditure, which is huge area of concern, these needs to be looked into and controlled. The most common purchases are  £27,000 and the most expensive one  £44,000 hence needs to be looked into to find reasons why so changes can be made. There is a lump sum of  £9000 in the month of March, from a vehicle that was purchased. This lump sum causes the March closing balance to be a negative balance of  £ -2,645 causing the cash flow to have a bank overdraft. Negative Closing balances The closing balances were decent and positive until April where the closing balance became - £1,654. The reason for this may be the decrease in sales by  £2520 in March, despite there being an extra inflow from the bank and  savings of  £8000. The reason of there being a negative closing balance must be from the lump sum of  £9000 outflow, which was due to a vehicle purchase. The negative closing balance continues into the month of May despite there being a increase of  £6300 on sales, the negative closing balance remains due to the rise in purchases of  £4500. The negative closing balance becomes constant throughout the whole year and only gets higher despite the sales rising due to the expenses. The highest negative closing balance is in October of - £12730 despite there being high sales in September. The reason for this was again the increase in outflow of  £5760.