5.4 - Improving cash flow and profits

Question 1

How can a business improve profitability?

Answer 1

Profit and profitability can be increased by reducing expenditure on fixed and variable costs.
Profit and profitability can be increased by increasing the selling price per item.

Question 2

What are the challenges of improving profitability?

Answer 2

Trying to reduce expenditure on fixed and variable costs can reduce quality which may reduce sales and therefore also reduce revenue.
Increasing the selling price can deter customers from purchasing products which can decrease sales volume and market share.

Question 3

How can a business improve cash flow?

Answer 3

Removing or reducing trade credit for customer.

Asking suppliers to increase trade credit.

Question 4

What are the challenges of improving cash flow?

Answer 4

Removing or reducing trade credit periods for customers can reduce customer satisfaction which may reduce sales volume and market share.
Asking suppliers to increase trade credit periods can create tension between the business and its suppliers which may result in poorer relationships and reduced dependability.