Cash flow forecast worksheet 1: Good Books ( GB)
Jay Roy runs mini book shop Good Books (GB) specializing in IB diploma and Cambridge IGCSE books and examination resources. Good Books ( GB) runs as a sole trader. To take advantage of its good reputation, Roy is by planning to open a second shop about 12 kilometers from the current book shop.
Though GB has internal funds, Roy thinks that borrowing funds from a bank is a good option to finance. Roy has approached his banker for the partial finance. The bank manager has insisted Roy to produce cash flow forecasts for three months starting from April 2022.
Roy forecasts revenue and expenses for the first three months of the new store as follows:
- Personal or internal funds $ 8 000.
- Bank loan at the start of the shop $ 10,000.
- Startup expenses (April 2022) $ 6 000.
- Monthly rent $ 1 200.
- Shop employees’ wages $ 800 per month.
- Monthly loan repayment $ 800 starting from June 2022
- One-time promotional expenses (April) $ 600
- Estimated monthly revenue $ 10 000 ( increases by 5 percent every month)
Questions
- Explain two differences between cash and profit [ 4 marks]
- Prepare a monthly cash flow forecast for the first 3 months of operation of the new shop. Comment on the projected cash flow forecast of the new shop [ 6 marks]
- Identify and explain two benefits of cash flow forecast as a planning tool for Good Books [ 4 marks]
Cash flow forecast worksheet 2: Mumbai Entertainment Hub (MEH)
Raj Sony, a multi dollar business entrepreneur owns Mumbi Entertainment Hub (MEH) private limited in Mumbai. MEH is famous for its ambience, customer service, cleanliness of the shopping, entertainment, leisure areas, and all in one experience. Movie lovers can watch all most all Indian languages and genre of movies under one roof.
MEH provides a complete shopping and leisure experience for all. Though it is slightly away from busy Mumbi city, people love to travel as it offers a complete weekend holiday and shopping experience for all ages.
Impressed by the growth of Mumbai Entertainment Hub (MEH), Sony is planning to open a new Hub in Bangalore called ‘Bangalore Entertainment Hub (BEH). Though there are many premium malls in Bangalore, this unique experience is missing in these malls. Private survey revealed that people are looking for different shopping experience. Since, infrastructure and property prices are very high in Bangalore, Sony has to depend on external sources of finance. Apart from a few leading private banks, Sony also met business angels, who could provide a huge finance for the proposed project. The central government has hinted that the interest rates on long term loans will increase gradually.
To support the loan application, the finance department of MEH has forecasted the following revenues and expenses for the first 4 month the operations of BEH.
- Opening bank balance $ 0. 4 million (June 2022)
- Loans from banks and business angels $ 1 million (June 2022)
- Infrastructure investment $ $0.8 million each for three months from June 2022
- Staff monthly salary $ 300, there are 20 staff members.
- Annual building insurance $ 1200 paid in two equal instalments, paid every January and June.
- Monthly loan repayment $0.2 million. The repayment starts from September 2022
- Utilities and other bills $ 500 per month.
- Other operating expenses $ 300 per month.
- Monthly revenues from the Entertainment Hub $ 0.3 million. But it increases to $0.8 million from August 2022
- Revenues from other streams $ 20 000 per month. It increases by $ 2 000 from September.
(Note: Forecast figures are for examination purpose only, may not reflect realities)
Questions
- Define the term ‘business angels’ [ 2 marks]
- Define the term ‘internal growth’ [ 2 marks]
- Prepare a monthly cashflow forecast for the first four months of operations of Bangalore Entertainment Hub [ 6 marks]
- Comment on the projected cash flow forecast of the entertainment hub [ 2 marks]
- Identify and explain two limitations of cashflow forecast for Mumbai Entertainment Hub (MEH) as a planning tool [ 4 marks]