Here is a simple three-month cash flow forecast for a small seaside café
|
March
|
April
|
May
|
Inflows
|
Sales
|
46,000
|
54,000
|
61,000
|
Outflows
|
Inventory
|
13,000
|
13,000
|
13,000
|
Wages
|
28,000
|
28,000
|
28,000
|
Miscellaneous
|
3,500
|
4,000
|
4,000
|
Total Outflows
|
44,500
|
45,000
|
45,000
|
Net cash flow
|
1,500
|
9,000
|
16,000
|
Opening balance
|
4,000
|
5,500
|
14,500
|
Closing balance
|
5,500
|
14,500
|
30,500
|
The café owner thinks that good weather will increase the volume of customers and decides to appoint another full-time assistant in March. As a result, wages increase to an expected £31,000 per month
Calculate the closing balances in the cash flow forecast resulting from the changes above (4)
|
March
|
April
|
May
|
Inflows
|
Sales
|
46,000
|
54,000
|
61,000
|
Outflows
|
Inventory
|
13,000
|
13,000
|
13,000
|
Wages
|
31,000 |
31,000 |
31,000 |
Miscellaneous
|
3,500
|
4,000
|
4,000
|
Total Outflows
|
47,500 |
48.000 |
48,000 |
Net cash flow
|
(1,500) |
6,000 |
13,000 |
Opening balance
|
4,000
|
2,500 |
8,500 |
Closing balance
|
2,500 |
8,500 |
21,500 |
Step 1: Insert the value of the new wages into the relevant space for each month
Step 2: Calculate the new total outflows for each month and insert them into the relevant space for each month
-
- March: £13,000 + £31,000 + £3,500 = 47,500
- April: £13,000 + £31,000 + £4,000 = 48,000 (1 mark)
- May: £13,000 + £31,000 + £4,000 = 48,000
Step 3: Calculate the new net cash flow for each month and insert it into the relevant space for each month
-
- March: £46,000 - £47,500 = -£1,500
- April: £54,000 - £48,000 = £6,000 (1 mark)
- May: £61,000 - £48,000 = £13,000
Step 4: Calculate and insert the new closing balance for March and carry it forward as the opening balance for April
-
- £4,000 + - £1,500 = £2,500 (1 mark)
Step 5: Calculate and insert the new closing balance for April and carry it forward as the opening balance for May
-
- £2,500 + £6,000 = £8,500 (1 mark)
Step 6: Calculate and insert the new closing balance for May
-
- £8,500 + £13,000 = £21,500 (4 marks for the correct answer)
Note that this one change in the anticipated cost of wages impacts four other variables 1.Total outflows 2. Net cash flow 3. Opening balance (except March) 4. Closing balance