🏠 Internal Causes of Cash Flow Problems
Many cash flow problems come from within the business — poor management decisions or lack of planning.
- Overtrading — growing too fast without enough cash to support it
- Poor credit control — allowing customers too long to pay
- Too much stock — cash tied up in unsold inventory
- Over-investment — spending too much on fixed assets too quickly
- Poor financial planning — no cash flow forecast or unrealistic assumptions
- High overhead costs — spending more than the business can afford
Example: A new restaurant invests heavily in an expensive fit-out ($100,000) and offers generous 60-day credit to corporate clients. Within 3 months, it can't pay its food suppliers despite being busy every night.
Free preview
This is the free notes preview
You're reading the free notes. Aimnova Pro unlocks the full study experience — and you can try it free for 7 days:
- FlashcardsLock in vocabulary and key terms with spaced repetition.
- Practice questionsAnswer exam-style questions and get instant AI marking.
- Mock exams & past-paper vaultSit full mocks and see exactly how examiners award marks.
- Personalised study planA daily plan built around your exam date and weak areas.
Start your 7-day free trial Full access to Aimnova Pro · cancel anytime
🌍 External Causes of Cash Flow Problems
Some cash flow problems are caused by factors outside the business's control.
- Economic downturn — customers spend less, sales drop
- Seasonal demand — sales fluctuate throughout the year (e.g. ski resorts, ice cream shops)
- Late customer payments — customers delay paying invoices
- Increased competition — competitors take market share
- Supplier price increases — raw material costs rise unexpectedly
- Interest rate rises — loan repayments become more expensive
Seasonal businesses like ski resorts or beach hotels need to plan carefully — they may have 6 months of low cash inflows but still have to pay rent all year! 🎿
Never wonder what to study next
Get a personalized daily plan based on your exam date, progress, and weak areas. We'll tell you exactly what to review each day.
Try Free Study Plan7-day free trial • No card required
🔍 Identifying Problems from Data
In the exam, you may need to look at a cash flow forecast and identify what's going wrong.
- Negative net cash flow for several months → outflows consistently exceed inflows
- Declining closing balance → cash reserves are being eroded
- Negative closing balance → the business has run out of cash
- Large one-off outflows → major purchases or investments draining cash
- Inflows much lower than expected → sales targets not being met
When analysing data, look for PATTERNS — one bad month might be a blip, but three bad months in a row is a trend that needs action! 📉