>>then why didn't the current
>> owners just go and do that before Administration?
>>
Because they ran out of cash.
Very simply.
As a business you buy a part for cash £100 +VAT
You sell it for £140 +VAT on credit.
Profit £40.
Cash flow is negative £100 because you have paid for the part but you have not been paid for it.
What is more the tax man will want £8 in VAT ((140 x 20%) less (100 x 20%)) probably before you have been paid!
So negative cash flow is £108 until they get paid.
This is why businesses go bust. It's not profitability but cash flow and why banks are big on selling their invoice finance and asset finance products.
Last edited by: zippy on Fri 17 Jan 20 at 16:36
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