AFRICA GLASS

1. The business was profitable, how could Africa glass run out of cash?

Ans. You can have a profitable business and still fail. In fact, the number one reason for business
failure is running out of cash. Profit is not the same as cash flow.

Many business owners get themselves into trouble by assuming that their company’s available cash
will go up by as much as their profits. Unfortunately, it is a lot more complex. Just because your
company made a profit doesn’t necessarily mean that your cash increased. Therefore, your
company can run out of cash by growing too fast as easily as it can from not having enough sales to
cover expenses. How is this possible?

It is easy to understand how your company can run out of cash if it is losing money but running out
of cash when your sales and profits are growing doesn’t make sense at first glance. However, most
businesses require an additional investment in marketing to achieve higher sales, it takes money to
build additional capacity, and it takes cash to purchase additional inventory. This will cause a drain
on cash in advance of realizing additional cash inflows from the growth in sales and profitability.

This is what exactly happened when CEO Mr. Jerry Xue aimed to raise the revenue and started taking
big contracts to expand.

No cash flow projections or cash budget: The Bookkeeper did not include the Tax & Transportation
Cost in Cash forecast. Every business should have a comprehensive cash flow budget that defines
how much cash will be available from financing sources and operations, how much will be needed
for operations, and how much will be required for non-income statement activities such as
expansion, infrastructure, investments in inventory, and investments in longer term assets. The
business should also understand the sources and uses of cash. Businesses tend to severely
underestimate how much cash flows out of the business, and how long it takes to recover that cash.

Rapid growth: Rapidly growing businesses are much more likely than slower growth businesses to
run out of cash. Cash flow needs increase with growth rates. That’s because the business needs to
hire new people, increase marketing, invest in production capacity, order more inventory, and make
other expenditures to keep up with demand. The smart business owner will slow growth if required
in order to balance capacity, cash flow, and demand.

2. How useful an accurate forecast of cash flows have been to Jerry?

Ans. A cash forecast is help to estimate of the amount of money you think you could bring into your
business and how much you’re expecting to spend. It also includes all your itemised projected
income & expenses. A cash flow forecast it gives “waring System”- it warns that if there will be
shortage so you can immediately get a backup plan ready & it let you know if you will be earning
more money and your expenses within margin what you thought. With access to more cash, you can
then decide if you can afford to hire new staff, start introducing new products, rent more space for
your operations, or invest in new technology to improve your productivity.

The effectiveness of cash flow forecast useful to Mr. Jerry, the CEO of the Africa Glasses, for detailed
of cash inflow and outflows estimate are. It’s vital that he always get update it against the actual
performance of business to guarantee that its accurate. So it’s important to take into consideration
of payment terms so that he can accurately forecast of income and set it against outgoing.
Hence, cash flow forecasting is one of the most important business-critical tasks for doing. It’s not
just about keeping an eye on the amount of money that’s coming in and going out, it’s essential for
helping future- proof of the business.

3. What could Jerry do to improve cash position ?

Ans. Below are some actions Jerry could take to improve cash position:

 Reduce the outgoings: List down all expenses in a spreadsheet and detect those that he
think aren’t important to his operation. Analyse them and see if he can cut down anything.
 Make improvements within his business: Maybe the prices of his products are too low and
need to put them up so he can have adequate money to cover the shortfalls.
 Review the performance of the staff and see that their productivity and output is still high
enough. 
 Assess the marketing efforts: Perhaps the number of retail orders are started demanding the
credits and also they demanded for very high quality standards.

4. Do you think it is possible to expand too quickly ?

Ans. Yes, Business can be expand too quickly. But for that business man must study market 1st.

Customers have certain expectations from a business and the way a business meets those
expectations, defines its brands.

There can be multiple internal and external factors behind the failures of marketing plan.

Mr. Jerry, the CEO of the Africa Glasses, did some small mistake which leads the failure of the
company, some of them are as follows :

1. Rapid changes

2. Unclear communication

3. Selected market segment

4. Unclear strategy

5. Focus on market sharing

6. Unmet brand promises, etc.

Every year, marketers spend a lot of time building their marketing plans, getting budget approvals
and planning new initiatives. But by the end of the year, looking at the original plan, they realise
most things they planned hadn't worked or generated the expected outcome.