Business organizations today are encouraged to join in the bandwagon of globalization procedures. This procedure of advancement however requires particular ways by which the organization should spend some funds to be able to assist their own organization in meeting the challenges of global trading transactions. Of course, to be able to meet the said progressive procedures, the entrepreneurs are expected to at least invest on the said processes. However, not every entrepreneur is able to measure the great probabilities and the possibilities of the said procedures.
Some may even have an over expectation in terms of what they have particularly invested in their business for the sake of having an assured success in the future. This is when the problem usually begins to rise. The fact is that there are numerous entrepreneurs who are not able to gauge their company’s monetary capability at a reasonable scale of their resources and the capital that they have primarily business organizations into failure during the past decades.
This is primarily the reason why there is a certain need in studying what the probable causes are for this particular situation to occur and how far does SGR or sustainable growth rate affect the situation as well as the other way around. A. Cash and Its Role in business Organizations Cash or money is the main reason why business entities exist. Most likely, the idea is supported by the fact that money is the main root why organizations for-profit have been primarily established within the human society.
The said business entities are pre-established to actually regulate the money or the wealth that the human society possesses. Most likely, the thought is provoked by the fact that money is needed by people to be able to live in a money-driven society. Hence for distribution and balancing of the wealth allocation in the society is primarily hosted by business ventures. To understand the picture of the idea better, the diagram below shall give an overview of the said cycle: Analysis of the Diagram:
The presentation above particularly pertains to the fact that the business firms remain as link between the society and the households in regulating the monetary funds of the entire human community. It is through the existence of the said firms that the wealth of a certain human community is being distributed among the people in the said area. However, without the ability and skill of the owners of the business in balancing the inflow and outflow of the money that is utilized by the organization, this particular aim of balancing the money becomes jeopardized and is thus unsatisfactory in terms of the result.
This is usually where the cash flow shortage enters the situation. To understand the though further, the discussion that follows shall explain. B. What is Cash Flow Shortage? Cash flow shortage is a business state that indicates the idea that there is a certain imbalance within the inflow and outflow of the cash funds of the organization. This is when the outflow [expenses and liabilities] of the organizational operations have a higher rate compared to the inflow [revenues and income] of the money in the company.
Constant observation of the way money enters and gets out of the organization is not a process that is enough to keep the said balance. Once the balance is destroyed, there is an indication that the cash that flows inside the company could not support the amount of cash that flows out the said organization. What are the said outflows that primarily affect that the operational engagements of several business organization?
These are the expenses that business organizations are actually involved with in their continuing operations as a business entity. What are the said expenses primarily made up of? (a)Employee Payments Each organization is responsible for giving their employees or their staff the rightful payment that they are due. The efforts that they put forward for the sake of the organization’s progress are equivalent to a certain amount of salary that has primarily been promised to them by the organization. (b)PRODUCTION Cost Expenses
This may include the cost of the production procedures that are completed by the organization [for manufacturing organizations] or it may include the processing expenses of the company with regards their completion of several other business operations that they need to finish for the sake of servicing to the needs of their clients. (c)Rent or Amortization expenses This refers to the payment that common organizations have to pay their landlords or their realtors to be able to remain in the physical establishments that they are currently staying in.
(d) Liability Interests Every business establishment has their own liabilities that may have primarily resulted from earlier loans or other monetary responsibilities against other organizations. This may result to too much higher interest rates that would actually cause higher rates of expenses for the organization. These expenses mainly affect the capability of the organization to handle further more responsibilities outside of the expenses that they are already handling. Hence, the rate of growth that they are trying to achieve may not be that easy to attain anymore.
To what does this particular situation result to? C. The Causes behind the Dilemma of Cash Flow Shortage Mostly, especially referring to cash or monetary issues, the problem is usually rooted from the administration themselves. The administration with which the owners of particular business organizations are joined with, usually face huge dilemma when it comes to over estimating the profits that could be brought about by the investments made by the company with regards the capital that they have primarily invested for the establishment of the business.
Hence, as a result, since they preempt that there would be huge amount of inflow that would likely be turned in within the organization’s fund after a particular operational year, they [the administration personnel] tend to spend more than what they particularly can change through the annual revenues of the organization.