Can you afford to carry on?
If you continue to earn £5,000 per month sales revenue, your net profit will be £1,415 per month. In ten years’ time, when you come to repay your bank loan, this (without taking tax or inflation into account) would amount to £169,800, so you could pay back your loan.
You have invested £40,000 in the business so the return on capital employed per year would be (operating profit =1,415 x 12)
16, 980 / 40,000 x 100 = 42.45% THE END
Profit and loss account for the first six months
Sales revenue £10,800
Expenses
Rent £15,000
Other expenses £41,510 £56,510
Loss (£45,710)
Can you afford to carry on with the business?
Work out whether you will be able to repay the bank loan and what your ROCE per year will be if you keep making £5,000 sales per month.
Profit and loss account for first six months
Do you think the business is successful? Now prepare a profit and loss account for the first six months of business using the figures from your cash flow and your knowledge of the finances of the business.
When you have finished,
Your cash flow forecast 32. NEXT
|
April |
May |
June |
July |
August |
Sept |
|
|
Opening bank balance |
£40,000 |
16,615 |
13,330 |
10,045 |
8,460 |
7,875 |
|
Sales revenue |
200 |
300 |
300 |
2,000 |
3,000 |
5,000 |
|
Total cash inflow |
200 |
300 |
300 |
2,000 |
3,000 |
5,000 |
|
Rent |
1,500 |
1,500 |
1,500 |
1,500 |
1,500 |
1,500 |
|
Other expenses |
22,085 |
2,085 |
2,085 |
2,085 |
2,085 |
2,085 |
|
Cash outflows |
23,585 |
3,585 |
3,585 |
3,585 |
3,585 |
3,585 |
|
Net cash flow |
(23,385) |
(3,285) |
(3,285) |
(1,585) |
(585) |
1,415 |
|
Closing balance |
16,615 |
13,330 |
10,045 |
8,460 |
7,875 |
9,290 |
Actual cash inflows and outflows first 6 months
Sales revenue
April £ 200 May £300 June £300 July £2,000 August £3,000 Sept £5,000
Your rent and expenses are the same as in your previous cash flow, but you now pay interest of £85 per month. Prepare a new cash flow account.
When you have finished:
The Bank Manager
The bank manager makes a long term loan to the business of £20,000 to be repaid in 12 years.
The rate of interest is 5% per annum payable monthly on the first day of each month by monthly instalments of £85.00 (including administration fee)
Now you need to check your actual cash flow against your forecast.