LECTURE 8 – CASH FLOW FORECAST PRACTICE

QUESTION
Poppy Patel runs a market stall selling fresh and dried flowers. She has a mix of
drop in customers and business contracts with hotels, conference centres and
restaurants. She estimates that 30% of sales revenue will come from drop in
customers who will pay in cash and the remaining 70% will come from business
contracts to whom she gives 2 months credit.

On the 1st January she has £400 in the bank and is owed £300 relating to previous
November sales and £450 relating to previous December sales.

Forecasts suggest that sales in the first quarter will be £750 per month and £1,000
per month in the second quarter (these figures include both cash and credit sales).

Poppy expects to make an extra £75 per month delivering flowers for special
occasions.

The cost of flowers and other materials will be approximately 60% of the monthly
sales per month. Her supplier gives her 1 month’s credit. At the 1 st January she owes
£280 to suppliers for purchases in previous December.

The rent of the stall is £2,000 per annum payable quarterly in advance on the first
day of each quarter. Advertising will cost £200 in the first month and £25 per month
subsequently, payable within the month.

She pays her cousin £300 per month cash to cover her times away from the stall.

Delivery costs are £50 per month payable in the month in which they are incurred.

Miscellaneous expenses will be £70 per month in the first quarter and £80 per month
thereafter, again payable in month in which they are incurred.

PREPARE A CASH FLOW FORECAST FOR POPPY PATEL FOR THE FIRST 6
MONTHS OF THE YEAR.
Does Poppy make any money and what can she do if she has a cash
deficit?

SALES JAN FEB MARCH APRIL MAY JUNE TOTAL

WORKING W1
Total Sales
Cash sales
receipts
Credit sales
receipts
Trade receivable
b/f
 Total cash
received
PURCHASE JAN FEB MARCH APRIL MAY JUNE TOTAL
WORKING W2
Total purchases
Credit purchases
Trade payable
b/f
Total cash paid

Poppy Patel Cash Flow Forecast for the Period from 1 January to 30 June

Fe
RECEIPTS/CASH IN Jan b March April May June Total
Sales cash received (W1)

Special Deliveries
TOTAL RECEIPTS/CASH IN

PAYMENTS/CASH OUT

Revenue Expenses:
Purchases cash paid (W2)
Rent
Delivery Costs
Miscellaneous expenses
Advertising
Salaries
TOTAL PAYMENTS/CASH OUT

NET RECEIPTS
OPENING BALANCE
CLOSING BALANCE