Understanding Overtrading and Its Prevention

What is overtrading?

• Expanding a business too quickly without adequate resources

• Investing in too many stocks

• Reducing production capacity

• Hiring too many employees

Which of the following is a common cause of overtrading?

• Increasing cash reserves

• Reducing stock levels

• Making a big capital investment before revenue is generated

• Decreasing demand

What is a strong indicator of early problems related to overtrading?

• High profits

• Employee satisfaction

• Excessive marketing

• Cash shortages and interruptions to cash flow

According to Andrew Goodacre, what is critical as businesses expand?

• Reducing product prices

• Hiring more staff

• Cash flow management

• Increasing marketing efforts

What percentage of SMEs in the UK see cash flow issues as a main obstacle?

• 13%

• 5%

• 25%

• 50%

What can poor cash flow lead to?

• Increased profits

• More investment opportunities

• Having to borrow money or using a bank overdraft

• Higher employee morale

What is one way to avoid overtrading?

• Expand rapidly

• Increase stock levels

• Lease instead of buying equipment

• Hire more employees

Why might leasing equipment be beneficial?

• It spreads costs over several months

• It reduces cash flow

• It increases stock levels

• It requires a large upfront payment

What does an EPOS system help with?

• Marketing strategies

• Stock management

• Employee training

• Customer service

How can businesses minimize the risk of late invoice payments?

• By reducing marketing efforts

• By hiring more staff

• By re-evaluating their business model

• By increasing stock levels