Cash Flow Problems Coursework Example | Topics and Well Written Essays - 1500 words

Cash Flow Problems - Coursework Example The company could also not afford to generate sufficient income to pay the salaries and wages of its employees. Consequently, the business had to close down altogether (Wires, 2011, p.14). Having been established in 1950, the company eventually closed down after 61 years of its operation in the automobile markets Cash flow problems are known to cause 70% of businesses to fail within their first year of establishment, making cash flow problems the major reason for business failure. (Wires, 2011, p.13). The dangers associated with cash flow problems cannot be predicted most of the times. Thus, even the well-established businesses falls into this risk. Although cash flow problems are the reasons for the business failure of the company, there are other various reasons as to why the company could not revive. Due to a lack of goodwill and not a so good reputation, the company could not access credits. Consequently, any means through which the company could improve its operations and head b ack to the path of profit making was blocked by a lack of access to credit (Howard, 2011, p.21). The size of the company is another factor that contributed to its failure. The company is small sized, thus it becomes difficult to compete with other large automobile companies in the industry. The small size is in terms of both its asset base and the market niche that the company has effectively curved. Another problem that forced the company to close down is its dependence on technology from other automobile firms. The company lacks the ability to develop or purchase production technologies of its own, and have thus been dependent on other companies for the provision of such technologies. With such dependence, it means that the company cannot effectively compete with the companies that are providing it with production technologies (Zeitch, 2011, p.9). Low sales have however been the main reason as to why the company could not meet its required cash generation to cover its expenditure. Having projected to sell between 50,000 and 60,000 vehicles in the year 2010, the company only managed to sell 31,696 cars. However, the problems of the company increased when general Motors blocked the rescue attempt of the company by two Chinese automobile firms, arguing that such actions would hurt the company’s markets in the US (White, 2011, p.2). Most significant of the causes of the cash flow problems of the company is the time difference between when the company’s payments were received and the costs incurred. While the costs were incurred continuously due to staff salaries and supplies of materials from the suppliers, the time duration it took to produce the cars, sell, and receive payments was relatively longer. This meant cash flow problems, since revenues could not come in at the same time as the costs went out. Under investment is another cause of the company’s business failure. While the company was, still a part of GM (General Motors), the owners did not invest sufficiently in the company. As a result, the company has not been able to meet its other obligations such as developing production technologies of its own. This has served to create dependency of the company on other automobile companies for technology provision (Howard, 2011, p.21). This notwithstanding, the production portfolio of the company was too small. The company did not manage to address this problem in good time. With such low production, the company could