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Business Studies: Rapid Expansion Efforts Driving Cash Flow Problems - Term Paper Example

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The author of the "Business Studies: Rapid Expansion Efforts Driving Cash Flow Problems" paper identifies the factors which could have potentially caused the cash flow issues and will offer theoretical conclusions as to how this problem might have occurred…
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Business Studies: Rapid Expansion Efforts Driving Cash Flow Problems
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Download file to see previous pages A situation has occurred in which a hypothetical company that manufactures yoghurt and fruit drinks has rapidly expanded its business. During the course of this hasty growth, the firm is now experiencing a noticeable cash flow problem.

Cash flow is best defined as the position within a firm which identifies the cash receipts and disbursements (expenditures) of the company (Marshall et al, 2004). Positive cash flow represents a situation in which a firm is competently able to pay its creditors while still maintaining an adequate supply of available operating cash. Negative cash flow indicates the opposite, where a firm's creditor-related expenses outweigh its available cash. Having offered this definition, the hypothetical United Health Foods is experiencing a cash flow crisis due to its rapid expansion efforts.

Effectively managing cash flows is crucial to the success of a business, thus a business owner must "understand the sources and uses of the firm's cash" (Longenecker et al, 2006: 213). In the case of United Health Foods, its sudden rise in operational costs associated with expansion has caused the company to experience a situation where its expenditures have outweighed its revenue (cash intake). When a business expands too

In the case of United Health Foods, the problem is likely in its expansion-associated operating costs, which are the costs associated in operating a business, including utilities, rents, and payroll salaries (Nickels et al, 2006). Assume for a moment that a portion of United's growth plan included the establishment of various, additional manufacturing facilities providing yoghurt and fruit drinks to various markets. Operating expenses, logically, will continue to increase with the establishment of each new facility. This creates a situation in which United must pay out substantial start-up costs for the new operations, perhaps payments for a new distribution centre, along with various operational costs for labour and supply (raw materials). ...Download file to see next pagesRead More
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