Business functions

Cash Flow Forecasts

Instructions

Rose and Dan Hughes run a bed and breakfast business in the Cotswolds. They have recently refurbished their premises in time for the summer and to be ready for their busiest time of the year. The refurbishment used all their cash reserves and they know the next nine months will be difficult in terms of their cash flow.

Using the cash flow forecast template and the information in the pop-up, draw up the cash flow forecast for Rose and Dan. Once you have completed the table, click on the questions button to answer the questions based on this forecast.

Answer the questions based on the completed cash flow forecast and then print out.

Cash flow forecasting PDF, page 4

1. Comment on Rose and Dan's cash flow prediction for the next nine months.
2. Should they be concerned?
3. Why do sales receipts and payments increase in July and August?
4. What type of costs for a bed and breakfast business would be included in the overheads?
Write your answer here.
Write your answer here.
Write your answer here.
Write your answer here.
Question 1

They have £500 as their opening balance in April. This has been done for you.

Question 2

The projected sales, based on an 80% occupancy rate of their bed and breakfast, are:

  • November and December £1000 per month;
  • April and October £2000 per month;
  • May and September £4000 per month;
  • June £5000 per month;
  • July and August £6000 per month.

Question 3

They expect no other income in the nine months.

Question 4

Their payments are:
£650 per month for repaying their mortgage.

Question 5

Drawings for both Rose and Dan will be £1000 per month.

Question 6

Stock (food for meals, coffee, tea and biscuits in rooms) is estimated at:

  • April £500;
  • May and August £600;
  • June and July £800;
  • September and October £400;
  • November £300;
  • December £200.

Question 7

Wages for the staff they employ is estimated to be:

  • April, May, September and October £800;
  • June £900;
  • July and August £1000;
  • November and December £600.

Question 8

They plan to spend the following amount on advertising in order to attract customers:

  • April £500;
  • May, July and August £100;
  • June £250.

Question 9

In June they need to pay their insurance for the forthcoming year which will cost them £400.

Question 10

There are many other payments that they have to pay, but individually these are quite low so they have grouped them all together under overheads and calculated the following payments:

  • April, October, November and December £150;
  • May and September £250;
  • June, July and August £500.

Question 1

Increase sales so that they have 100% occupancy throughout all nine months – this will give a sales figure of £6500 for every month.

Question 2

Increase wages to £1200 to cope with the 100% occupancy rate.

Question 3

Change stock every month so it is 20% of the sales figure per month.

Question 4

Increase overheads to £600 per month.

Further Question
What effect do these changes have on their predicted cash flow?
Add your text
Follow on Suggestions

Carry out some further changes by creating figures of your own. For example, what would happen if:

  • their occupancy rate dropped to around 50%;
  • they reduced staff costs by 20%;
  • the cost of buying stock increased by 5%;
  • they reduced the amount they took out of the business through drawings;
  • they had to buy some new equipment such as televisions for the rooms.
April May June July Aug Sept Oct Nov Dec
Sales 0 0 0 0 0 0 0 0 0
Total Receipts 0 0 0 0 0 0 0 0 0
Mortgage Repayments 0 0 0 0 0 0 0 0 0
Staff Wages 0 0 0 0 0 0 0 0 0
Drawings 0 0 0 0 0 0 0 0 0
Advertising 0 0 0 0 0 0 0 0 0
Stock 0 0 0 0 0 0 0 0 0
Insurance 0 0 0 0 0 0 0 0 0
Overheads 0 0 0 0 0 0 0 0 0
Total Payments 0 0 0 0 0 0 0 0 0
Net Cash Flow 0 0 0 0 0 0 0 0 0
Opening Balance 500 0 0 0 0 0 0 0 0
Closing Balance 0 0 0 0 0 0 0 0 0