29 Explain the term 'overtrading'.

[Sir Afzal Shad]

29 Explain the term 'overtrading'.[3]
Hint: Expanding too quickly > Without enough working capital > Business is unable to pay its short-term debts, even though it may be profitable.

[Shaliza khawaja]

Overtrading is when a business expands its operations too quickly without having enough cash or resources. For example, taking on too many orders without enough workers to cover them can cause cash flow problems, putting financial pressure on the owners and suppliers. This can damage relationships and lead to operational issues.

Examiner Comments:
- A good answer, but request to follow the structure.
- Check for spellings

Possible Development:
> overtrading is when business expands too quickly that exhausts its financial resources & working capital >> A book store expands too quick by opening outlets in expensive areas >> capital tied up with higher rental costs, inventory, staff >> Online stores like Amazon changed the trends of buying, a footfall declines leading towards lower sales & unable to manage expenses in long-run pushing business towards shutting down non-performing outlets.

[shamaim shakeel]

(KN)
Overtrading happens when a business tries to grow or sell more than it can afford with its current money and resources.

(APP)
For example, a small shop might open many new branches quickly without having enough cash to pay suppliers or workers on time.

(AN)
This can cause cash flow problems because money goes out faster than it comes in.
The business may struggle to pay its bills and might need to borrow money.
As a result, it can face financial trouble or even risk closing down. or (KN)
Overtrading happens when a business expands too quickly and uses up most of its financial resources and working capital.

(APP)
For example, a bookstore may open many outlets in expensive areas, which increases rent, stock, and staff costs.

(AN)
Because so much money is tied up in these new outlets, the business may run short of cash to cover daily expenses.
At the same time, online stores like Amazon have changed buying habits, so fewer people visit the shops.
As a result, the bookstore may face lower sales and be forced to close non-performing outlets in the long run.

[Muaz Aamir]

KN Overtrading happens when a business expands its sales or operations faster than it can finance them.

AP For example, a company might take on too many new orders without having enough cash to pay for materials.

AN This creates cash flow problems because money is tied up in stock, leaving the business short of cash to cover day to day costs and putting it at risk of running out of funds.

[Aayan Zaidi]

KN: Overtrading happens when a business grows too fast without enough money to support its operations.
APP: E.g a shop opening many new branches quickly might run out of cash to pay suppliers.
AN: This can cause cash flow problems and even lead to business failure if not managed properly.

[Aarib Saad]

(KN)It refers to growing faster than the business can manage to do so.
(APP)For instance, in the case of a car manufacturer growing too quickly might be problematic as the business might not have enough capital (machinery) to be able to keep up with the demand for it's cars.
(AN)This will lead to demand not being fulfilled on time, disappointing customers, so they will instead turn to competitors, decreasing market share.

[Fatima ibtehaj]

[KN]Overtrading happens when a business grows too quickly without having enough cash or resources to support that growth.
[APP]If a small clothing company suddenly receives many large orders but doesn’t have enough cash to buy materials or pay staff, it may run into financial trouble even though sales are increasing.
[AN]Overtrading can cause cash flow problems which can disrupt smooth running of business operations hence affecting brand image negatively and the business will be unable to grow.

[Hajra]

K: Overtrading happens when a business grows too fast without having enough cash to pay for its day-to-day expenses.
App: For example, a small bakery taking too many orders at once may not have enough money to buy ingredients.
An: This can cause cash flow problems, risk unpaid bills, and even threaten the survival of the business.

[Arham Qadri]

[KN] It is when a business grows fast without enough money to do its operation.
[APP] For example if a small coffee shop receive many orders, it may not have enough money to purchase the necessary ingredient.
[AN] This may lead to cash flow problem and may affect the survival of business, and the brands image could also be negatively affected.

[Abdullah Altaf]

[KN] Overtrading is when business expands too quickly that exhausts its financial resources & working capital.
[APP] For instance, a fast-growing tech startup might rapidly expand its sales team and marketing efforts but neglect to scale its customer support or product development, leading to customer dissatisfaction and potential financial strain.
[AN] Consequently, this can lead to decreased customer retention, damage the company's reputation, and result in financial instability, potentially hindering long-term growth and sustainability.

[Abdullah Baig]

Kn
Overtrading occurs when a business expands too quickly without having enough working capital to support that growth
App
For example, a small retailer may open several new branches at once but not have enough cash to pay suppliers and staff on time even though sales are increasing
An
Therefore, overtrading can cause a profitable business to fail in the short term due to poor cash flow management and insufficient financial resources to sustain growth

[Mamoona Hussain]

KN: Overtrading is when a business exhausts it's financial resources too much by expanding too quickly.
APP: For instance a school opens up too many branches at once due to which most of its capital is spent there and don't have enough finance left to cover daily expanses.
AN: So when a competitor introduces online schooling systems, they do not have enough finance to step into that market, due to which they loose customers and their sales drop, forcing the business to close down non operating branches and possibly lead towards potential failure. So due to overtrading a business may not be able to respond quickly to the dynamic business environment.

[M huzaifa jillani]

(KN)
Overtrading happens when a business grows too quickly without having enough cash or resources to support that growth.
(APP)
For example a small furniture business might open several new shops quickly but not have enough money to pay suppliers or rent on time.
(AN)
This can cause cash flow problems even if sales are high because the business spends money faster than it earns which can lead to debts or even failure.

[Wahaj Ashraf]

[KN] overtrading is when business expands too quickly spending its resources and all of its capital.
A fast food expands too quick by opening outlets in different areas >> which will effect the capital as there will be higher rental costs however if there are other fast food businesses doing deliveries online this may change the trend of the market which will result in a decline leading towards lower sales resulting in business unable to manage expenses in long-run pushing business towards shutting down non-performing outlets

[Naveen fatima]

[KN] Overtrading happens when a business expands its sales or production too quickly without enough cash or resources to support it.
[APP] For example, A clothing store might open many new branches but not have enough money to pay supplier wages on time.
[AN] This can leas to cash flow problems, making it hard for the business to meet short-term expenses and possibly forcing it to close.