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.