|Payments from previous months sales||30,750||19,800||46,800|
|Total cash inflow||32,950||25,000||52,300|
|Total Cash Outflow||75,200||36,200||40,200|
|Net cash inflow/(outflow)||(42,250)||(11,200)||12,100|
|Opening cash balance||25,000||(17,250)||(28,450)|
|Closing cash balance||(17,250)||(28,450)||(16,350)|
Based on the provided data, Visor Ltd is facing potential cash flow issues in light of the planned renovation. More specifically, the cash deficit is likely to reveal itself by the end of February, if the projected turnover trends prove to be true. The renovation is to take place in January, causing the available cash to go into overdraft. The financial impact of the decision will not be obvious in this month due to the available cash from the previous period. However, the delayed impact of the costs of renovation to be incurred will be more obvious in February. The forecast for sales turnover will not cover the expenditures sufficiently to prevent the deficit. In fact, as per the current data, Visor Ltd cannot afford such a renovation, as the bank account of the company will drop below the allowed £25,000 of overdraft in this case. The performance improvement will only allow the business to resume growth in February, but the state of overdraft will persist.
Accordingly, alternative recommendations can be provided with regards to the currently envisaged plan. The simplest solution for Visor Ltd will be to seek cost reduction for the planned renovation by at least £3,450. This way, the overdraft limit will be met as per the bank account terms. However, it may be wise to ensure more room for unexpected costs, as the current analysis relies on the absence of other expense in February and March. Overall, this data confirms the value of cash flow analysis as the reflection of the actual financial state of the company (Soboleva et al., 2019). Through it, Visor Ltd can evaluate the exact amount of disposable cash in the near future, as opposed to hypothetical earnings (Bhandari et al., 2019). Ultimately, the management will be able to make informed decision that will not undermine the financial security of the company.
Bhandari, S. et al. (2019) ‘A comparison: accrual versus cash flow based financial measures’ performance in predicting business failure’, Journal of Accounting and Finance, 19(6), pp. 11–25.
Soboleva, Y. P. et al. (2018) ‘Monitoring of businesses operations with cash flow analysis’, International Journal of Civil Engineering and Technology, 9(11), pp. 2034–2044.