A new company may find itself profitable but cash poor for the following two reasons:

1) Immediate payables but delayed receipts. 2) Increasingly larger orders or perhaps one significantly large order.

In the first case a company may be making profitable sales, but the receipts for those sales might not be coming in on time to meet or pay for expenses. Payroll expenses are immediate. Loan payments are on a schedule and must be made on time. A new company is still generally forming its relationship with suppliers and strives to make those payments quickly.

On the other hand, a growing new firm might find that its new customers make their payments, but they are often delayed. In fact, the new company may make sales expecting payment in 30, 60, or even 90 days and include that in a sales contract. Thus, the cash coming in is delayed enough that even though the company appears profitable, it does not have the cash to pay its immediate debts. In the second case, a company may find itself with a very profitable, but unusually large order and may not have the cash, supplies, or facilities to meet the order on time.

In this discussion, you are to:

• Further analyze (speculate or anticipate) what might lead to each of these situations, if these situations are limited to only new companies, ideas that could possibly overcome these two cash flow issues and help management in these types of situations.