Day 7 cash flow

B R I A N W S T E E Ldeveloping higher performance

Starting in BusinessFinance – Cash flow


The Start-up Programme – City of Bristol College

After the Cash Flow the Profit Forecast is the document lenders will be most interested in.


The Start-up Programme – City of Bristol College Jan Feb Mar Apr May Jun Total

Receipts

Cash Sales

Credit Sales

Capitol Introduced

Other Income

Total Receipts

Expenditure

Payments to creditors

Salaries/Wages

Rent/Rates

Water

Insurance

Repairs/Renewals

Heat/Light/Power

Maintenance

Printing/Stationery

Transport

Telephone

Professional Fees

Capital payments

Loan repayments

Bank charges

Drawings

Total Expenditure

Net cash flow

Opening balance

Closing balance



Charlie’s is a small retail operation which has just opened. Her bank have asked for a cash flow and profit forecast for the next 6 months before they will open a bank account. Charlie finds or estimates the following information:Including the £3,000 she has to start the business she believes she will turnover £24,650 made up of £200 in the first month, then £500, 950, 500, 200 and 300. Trade sales on credit terms will bring in £1000, 5000, 6000, 4000, and 3000 but will not start until the second month.Payments to her creditors will start in month 3 with an initial payment of £3000, followed by payments of 2500, and 2 lots of 2000.Wages for the six months will be £5502 paid equally each month. Rent is £250 per month and power is £500 per year payable in two payments starting in month4 there is also an annual maintenance charge of £200 payable in month 2.Other costs Charlie knows about include a payment for cards and stationery of £200 payable immediately. A repair bill on her van which is due in month 2 amounts to £200. Insurance premiums totalling £280 due in month1 a telephone bill she estimates will be £150 due in month4 and her solicitors bill of £200 which he has put back until month 6. Water rates of £60 are due in month 3.She also has to pay for equipment purchased at a cost of £4000 in month 1. Charlie also has a bank loan, previously agreed which she is attaching to the business and will be making £310 per month repayments from month 2 but she is accounting for charges which start immediately of £50 per month. She intends to draw £400 per month for herself for the first 2 months, £500 in the 3rd then 2 lots of £400 then £500 again. She is starting the business with 1000 in her bank.



Receipts

Cash Sales 200 500 950 500 200 300 2650Credit Sales 1000 5000 6000 4000 3000 19000Capitol Introduced 3000 3000Other Income

Total Receipts 3200 1500 5950 6500 4200 3300 24650

Expenditure

Payments to creditors 3000 2500 2000 2000 9500Salaries/Wages 917 917 917 917 917 917 5502Rent/Rates 250 250 250 250 250 250 1500Water 60 60Insurance 280 250Repairs/Renewals 200 200Heat/Light/Power 250 250Maintenance 200 200Printing/Stationery 200 200Transport 150 150 150 150 150 150 900Telephone 150 150Professional Fees 200 200Capital payments 4000 4000Loan repayments 310 310 310 310 310 1550Bank charges 50 50 50 50 50 50 300Drawings 400 400 500 400 400 500 2600

Total Expenditure 6247 2477 5237 4977 4277 4177 27392

Net cash flow (3047) (977) 713 1523 (77) (877) (2742)Opening balance 1000 (2047) (3024) (2311) (788) (865) 1000Closing balance (2047) (3024) (2311) (788) (865) (1742) (1742)



What is a Profit forecast?

It shows the expected profitability of the business for a trading period – usually 12 months.

In addition it provides other information to enable the performance of the business to be measured.



Why produce a profit forecast?

It establishes the key performance measure of the business month by month.

It informs decision making in relation to the management of overheads.

It encourages efficient and effective control over expenditure.

It focuses decision making by presenting financial facts.



Using the cash flow for Susan Brown at Dynamic Fabric complete her profit forecast.



Revenue

[A] Cash Sales

[B] Credit Sales

[C] Total Revenue [A+B]

[D]Materials and Stock purchased

[E] Gross Profit [C – D]

Gross profit %age [E/C]100

Overheads

Salaries/Wages

Rent/Rates

Water

Insurance

Repairs/Renewals

Heat/Light/Power

Maintenance

Printing/Stationery

Transport

Telephone

Professional Fees

Capital payments

Loan repayments

Bank charges

[F] Total Overheads

[G] Net Profit before drawings [E – F]

Net profit %age [G/C]100



Revenue[A] Cash Sales 200 500 950 500 200 300 2650[B] Credit Sales 1000 5000 6000 4000 3000 19000

[C] Total Revenue [A+B] 200 1500 5950 6500 4200 3300 21650[D]Materials and Stock purchased 3000 2500 2000 2000 9500

[E] Gross Profit [C – D] 200 1500 2950 4000 2200 1300 12150Gross profit %age [E/C]100 100% 100% 49.6% 61.5% 52.4% 39.4% 56.1%

OverheadsSalaries/Wages 917 917 917 917 917 917 5502Rent/Rates 250 250 250 250 250 250 1500Water 60 60Insurance 280 280Repairs/Renewals 200 200Heat/Light/Power 250 250Maintenance 200 200Printing/Stationery 200 200Transport 150 150 150 150 150 150 900Telephone 150 150Professional Fees 200 200Capital payments 4000 4000Loan repayments 310 310 310 310 310 1550Bank charges 50 50 50 50 50 50 300

[F] Total Overheads 5847 2077 1737 2077 1877 1677 15292

[G] Net Profit before drawings [E – F]

(5647) (577) 1213 1923 323 (377) (3142)

Net profit %age [G/C]100 20.4% 29.6% 7.7%



Cash Flow Forecast

Measuring performance

Profitability:

[Gross Profit/Sales]100 = Profit %age



Cash Flow Forecast

Why the percentage changes:

Increased selling prices

Lower material costs

Less waste



Cash Flow Forecast

Reduction in percentage:

Reduced prices

Increased direct costs

Stock losses



Cash Flow Forecast

Improving gross margin

Annual sales x increase in gross margin

£200k t/o 1% increase in GMP provides additional £2k profit.

Economy & Finance

Day 7 cash flow