POTENTIAL PROBLEMS OF GROWTH - overtrading

Question 1

define overtrading

Answer 1

occurs when there are liquidity problems linked to the financing of rapid growth

Question 2

how cna we use overtrading in essays

Answer 2

Use as disadvanatege /risk of fast growing bs

Question 3

overtrading can cause problems with what during growth phase

Answer 3

cashflow

Question 4

how cna we prevent overtrading

Answer 4

mange growth effectivley and ensure expansion is not oto rpaid - involving effective budgeting and cash flow management

E.g if bs opened a few stores then waited for these to establish themselves and payback before expanding further , financial position could be healthy

Question 5

give wys of mangingn cashflow

Answer 5

Lease nca such as machinery as opposed to buying them outright reduces large outoings

Reduce receivables and expand creditor days as this will improve cash flow - may lead to issues with suppliers

Slow growth till bs has has sufficient cash reserves in place

Ensure cash flow forecast is prepared prior to each expansion so maanhers ca be informed on lvl of cash available as well as ensure creditors will be paid - if thers an issue encirages managers to put lt funding in place earlier

Question 6

overtrading is not htat bad cause ot can be result of

Answer 6

pressure to build quickly on success and epxand rapidly perhaps to establish the brand or enter mkt before comp