The big management reporting challenge: Cash flow

(i) $100K needed ($250K less 3 times $50K from operations)

(ii) Three sources of finance -

a) invoice discounting

b) extended credit from suppliers

c) investment from business angel (or family and friends)

Ray

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As JB only need to rise £100K as £150k (50K x 3) will be raised via additional surplus from its operations activity.

Three Sources of Financing

1- Changing the working capital Cycle i.e. increase credit terms from suppliers and reducing receivables period

2- Issue more shares to raise funds (as a last resort)

3- Sell Receivables to debt factoring company

Needs something that can be arranged, agreed and implemented within 3 months!                                   1)       Stock/Inventory Financing a)       Can’t assume factoring or invoice discounting since asset is said to be inventory not debtors, he may be a cash sale business! such is not stated.      b)       May be a requirement to use in conjunction with receivable financing if is the case 2)       Purchase Financing on letter of credit a)       Assuming his purchases qualify since would be tough/unfair to agree/impose extended credit terms on suppliers so quicklyb)       Letter of credit may less effect other funders security criteria. 3)       Talk to Bank / Renegotiate    a)       C'mon, he will be out of the woods two months later, surely the bank will do a deal with such a good customer!

The text says an additional $50k cash surplus will be made each month.  This suggests that a cash surplus is being made elsewhere, i.e. surplus is large than $50k per month.

Assuming financing is still required, three easy forms of financing are:

i) Improved balance sheet management- reduce stock holding, improve credit control.

ii) Trade credit (extend levels)

iii) Factoring or discounting