30 Explain one way a business could solve a potential cash flow crisis caused by rapid growth.

[Sir Afzal Shad]

30 Explain one way a business could solve a potential cash flow crisis caused by rapid growth.[3]
Hint: Arrange an overdraft > Get a short-term loan facility from the bank in advance > This provides the cash needed to pay bills while waiting for customers to pay.

[Shaliza khawaja]

A cash flow crisis occurs when a business does not have enough cash to pay its day-to-day expenses. For example, a fast-growing business may face higher demand and need to spend more on stock before receiving customer payments. One way to solve this is by renegotiating credit terms with suppliers, such as offering to double the order if they extend the payment period or give a 5% trade discount. This helps the business delay cash outflows, keep enough money for daily operations, and avoid taking short-term loans.

Examiner Comments:
- Require proper development of analysis
- Renegotiate terms with suppliers like "I will double the order if you offer 5% trade discounts or if you extend the recovery time" etc.

[shamaim shakeel]

Knowledge Point:
A business can solve a cash flow crisis caused by rapid growth by arranging a short-term bank loan or overdraft to cover its immediate expenses.

Application:
For example, a fast-growing company like Domino’s Pizza could use a short-term bank loan to pay suppliers and staff while waiting for customer payments.

Analysis:
This gives the business quick access to extra cash, helping it manage daily costs during busy periods. Once customer payments are received, the loan can be repaid easily. This prevents delays in payments, keeps operations running smoothly, and helps the business continue its growth without facing financial stress.

[Muaz Aamir]

KN A cash flow crisis is when a business runs out of cash to pay its bills, even though it’s earning money.

AP For example, a business that grows too fast might spend too much on new stock or staff before the money from sales comes in.

AN The business could fix this by delaying some payments or asking customers to pay faster, which would bring in more cash quickly and help it keep running without borrowing too much.

[Aayan Zaidi]

KN: A business can improve cash flow problems by improving how money co.es in and goes out.
APP: E.g it could ask customers to pay earlier or delayed payments to suppliers.
AN: This helps to keep enough cash available to cover daily costs during rapid growth.

[Aarib Saad]

(KN)By borrowing a short term loan from a bank for covering running costs of the business.
(APP)For instance, in the case of a growing restaurant franchise, it will allow the business to cover costs of setting up the new branches, such as setting up kitchens and sitting areas without worrying about not being able to cover running costs.
(AN)Thus, this will improve the cashflow forecast of the business, encouraging more shareholders to invest into the business, which will in turn allow the business to be able to expand further, like through advertising, without worrying about being unable to cover costs.

[Fatima ibtehaj]

[KN]One way a business could solve a potential cash flow crisis caused by rapid growth is by arranging a short-term bank loan or overdraft.
[APP]For example, if a small furniture company expands quickly and needs to buy more materials before receiving customer payments, an overdraft can provide temporary cash.
[AN]This helps the business continue operating smoothly and avoid delays or damage to its reputation while it stabilizes its finances.

[Hajra]

K: Rapid growth can cause a cash flow crisis if expenses rise faster than income.
App: For example, a clothing brand may need to pay suppliers before customers pay for new stock.
An: The business could solve this by arranging a short-term bank loan or overdraft, giving it extra cash to cover daily costs until revenue increases.

[Abdullah Altaf]

[KN] Cash flow crises could be solved by taking short term loan from the bank.
[APP]For instance, a retail business experiencing rapid expansion might need to purchase inventory and cover initial marketing expenses before generating sufficient revenue from sales.
[AN] Obtaining a short-term loan allows the business to meet these immediate financial obligations, ensuring operational continuity and preventing potential disruptions during its growth phase

[Abdullah Baig]

Kn
A business can solve a cash flow crisis caused by rapid growth by arranging an overdraft with a bank
App
For example, a rapidly expanding clothing store may struggle to pay suppliers before customer payments arrive, so it arranges an overdraft facility with its bank allowing it to borrow short term funds when cash is low ensuring it can cover wages and bills on time
An
Therefore, using an overdraft helps a business manage short terms finances and debts

[Mamoona Hussain]

KN: They can solve this problem through arranging an overdraft from the bank.
APP: for instance, a book shop can take a short term loan from the bank to open an online website or to keep the stores running till the customers pay.
AN: Due to this the business will be able to survive until the problem is resolved, which helps it to maintain its brand reputation, due to which they can encourage more investors to invest in the bookstore, which can improve their financial conditions.

[Arham Qadri]

[KN] By quick growth by arranging a credit extension from bank.
[APP] For example a quick expanding business may not be able to pay the suppliers before customer payments arrive.
[AN]Therefore, arranging an overdraft provides immediate access to short term funds, allowing the business to pay suppliers on time, which prevents production delays and maintains good relationship with the supplier during its rapid expansion.

[Wahaj Ashraf]

[KN] They can solve this problem by taking a loan from the bank.
[APP] e.g. in case there is a growing fast food business by taking the loan the business can cover its costs of setting up new branches and expanding their business. Moreover bank will easily provide the loan as the business is successful.
[AN] Thus this will improve the current cashflow of the business encouraging more people to invest into the business which will allow the business to be able to expand further through advertising without worrying about being unable to cover costs.

[M huzaifa jillani]

(KN)
A cash flow crisis happens when a business doesn't have enough cash to pay its short term expenses even if sales are high.
(APP)
For example a fast growing restaurant chain could delay paying suppliers for a few extra weeks to give itself more time to collect money from customers.
(AN)
This helps improve cash flow because money stays in the business for longer allowing it to pay wages rent and other bills in time . However the business must be careful not to delay payments too much or suppliers may refuse future orders or end their contracts.

[Naveen fatima]

[KN] One way a business can solve a cash flow crisis from rapid growth is by arranging short term bank loan or overdrafts.
[APP] For example, A fast growing cafe chain can use an overdraft to pay suppliers and wages while waiting for customer payments.
[AN] This provides immediate access to cash, helps the business meet short term costs snd allows it to continue operating smoothly during the growth period.