Bowton Spice BazaarSection 1 - IntroductionChloe's restaurant has had to close due to poor cash flow.Cash Flow is the flow of money into and out of a business over a period of time, calculated at the exact time the cash physically enters or leaves the bank account or till. Many businesses will forecast cash flow to identify when they might experience cash flow problems.There are many factors that can lead to poor cash flow.
Impact On Businesses In Bowton And Chloe's Business
In a recession, many people face falling incomes and consumer confidence will be low. As a result, some people may have less disposable income to spend on luxuries (Such as a meal at a restaurant Like Chloe's Restaurant). Businesses selling these products may see a fall in the demand for their business and thus a fall in revenue and profit.
Those who are made unemployed will have lower disposable incomes and therefore have less money to spend (See Recession). Some businesses may benefit if they are looking for workers as there will be more potential people to employ.
Increase In VAT
If there is an increase in VAT, business will have to increase their prices to cover costs and therefore may see a fall in demand for their business. This will especially affect luxuries like a restaurant as people will be reluctant to spend more money.
Rise In World Food Prices
If food prices rise, the cost to a restaurant of providing a meal will increase. This will reduce profit margins and ultimately profit unless the restaurant increases their prices. However, the problem with the economy in recession is that any increase in prices is likely to see a fall in demand.
Fall In Bowton Population
If the population of Bowton falls, there will be less potential customers for business to sell to reducing demand for Chloe's restaurant and therefore means revenue and profit is likely to fall. This may reduce demand generally in the local economy.
Poor Cash Flow is a problem because:It means there is not enough money in the business to meet its day - to - day expenses. There is a lack of working capital.The business may not have the money needed to buy supplies (e.g. food for Chloe's restaurant).Staff may not get paid on time leading to poor motivation or workers resigning.Legal action may be taken against the business to recover any money that the business owes thus the business may be declared as bankrupt and have to cease their trading.The EUThe case study mentions the EU. The EU is a group of countries (28 including the UK, France, Germany and Spain) that have agreed to cooperate to make trade as easy between countries as within a country.EU operates as a single market - there is free trade between members.The single market means:No protectionist measures on trade between member states (tariffs, quotas, embargos etc)Elimination of border controlsFree movement of labour (people can work in any member state without restriction)Making taxes,...