Good Example Of Essay On Small Business Management (Assignment: Discussion Questions From The Book)
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1. Why must small business owners concentrate on effective cash flow management?
Cash acts as a blood of a business and cash flow is the blood vessel that enables the business to lead a health operation. An effective cash flow is required to maintain the regular expenditure of the business. Without enough fund or cash, a business cannot proceed with its operations. It has been seen through research that most of the small business faces the problem of cash flow management that creates irregularity in the operations of the organization (Scarborough, p. 234). This occurs because small business has shortage of liquid capital, therefore to proceed with its regular operations, it require regular role or flow of cash. It has been seen that small business owners concentrate on effective cash flow management to avoid unwanted situations in the course period of daily operations. This is really important for an entrepreneur to keep his business going with cash.
3. Outline the steps involved in developing a cash budget.
For developing a cash budget, the following steps are required (Scarborough, p. 241):
Determining an appropriate minimum cash balance: For preparing a cash budget the first step involved in it is the determination of the adequate minimum balance of cash that must be maintained by the business for its operations.
Forecasting receipts of cash: It is important to forecast the cash receipts of the month or year to prepare a cash budget.
Forecasting sales: By forecasting sales, the business can estimate what amount of transaction it is going to do in the coming period and through this estimation, it can estimate the cash inflows and outflows for the month.
Forecasting cash payments or outflow: Along with the estimation of the cash inflow, it is important to estimate the cash expenditure of the period to complete the cash budget of a particular period.
Estimating the cash balance at the end of the month: After completion of the estimation of the minimum balance and the cash inflow and outflow, the cash balance at the end of the month is estimated in the cash budget.
4. How can an entrepreneur launching a new business forecast sales?
It is difficult to forecast the sales of a new business firm because it does not have any previous records of sales. Though it is difficult but it is not impossible to forecast the sales of a new firm. For forecasting the sales of a new firm, research are conducted to know the situation of the market and analyze the sales of similar firms in the market. The new firm can take help of the local trade associations and chamber of commerce to collect information about the market (Scarborough, p. 245). Along with the help of local associations it can study published journals that provide information about other firms in the industry and predict the sales for the firm. It can conduct market survey for its products and services to estimate the sales for the first year. As per this estimation it plans its cash budget and production for entering the market.
8. What steps should business owners take to conserve cash in their companies?
Several steps can be taken by business owners to conserve cash in their companies. Some of the essential steps that are taken to conserve cash are as follows (Scarborough, p. 259-264):
Barter system: The business can use barter system that is exchange of services and goods for other services and goods. It is an effective method of conserving cash for the company. This system has been used since the ancient period and is still yet an effective way of conserving cash for the business. In USA it has been found that more than 500 barter exchanges prevail in small and medium sized business. This helps the company to buy its resources without using cash in exchange of goods and service.
Reducing overhead cost: Another effective way of conserving cash in a company is trimming the overhead cost by using substitute resources. The company can use credit facility for buying production materials for a shorter period. Instead of buying machineries and land for the business, entrepreneurs can go for hiring the land and machineries that helps them to conserve cash for other activities in the business. The owner can reduce cash outflow by managing the purchase system of the business effectively. They can go for used and recondition equipments to cut cost and conserve cash for the business. Hence, by reducing overhead cost, the owners can effectively conserve cash for the company.
Scarborough, Norman M. Effective Small Business Management. 10th ed. Prentice Hall, 2011. Print.
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