Question

Businesses often feel too busy to plan for the future. A study by Willard & Shullman Group Ltd. found that fewer than 14% of businesses with less than 500 employees do an annual budget or have a written business plan. For many small businesses the basic assumption is that, "As long as I sell as much as I can, and keep my employees paid, I'm doing OK." Most small business owners say that they understand that budgeting and planning are critical for survival and growth. But given the long hours that they already work addressing day-to-day challenges, they also say that they are "just too busy to plan for the future." Describe a situation is which a business "sell as much as it can" but cannot "keep its employees paid."

Answer 1

One such situation in which a business "sell as much as it can" but cannot "keep its employees paid" is the one where there isn't much liquidity in cash flows even though there are sales. For example, a company may be selling all its products but on credit basis or maximum amount of sale is happening on credit basis. In that scenario the company has no liquidity and therefore will be unable to pay its employees as it takes time to turn debtors or receivables into cash.