1. B R I A N W S T E E L
developing higher performance
Starting in Business
Finance – Cash flow

2. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
After the Cash Flow the
Profit Forecast is the
document lenders will be
most interested in.

3. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Jan Feb Mar Apr May Jun Total
Receipts
Cash Sales
Credit Sales
Capitol Introduced
Other Income
Total Receipts
Expenditure
Payments to creditors
Salaries/Wages
Rent/Rates
Water
Insurance
Repairs/Renewals
Heat/Light/Power
Maintenance
Printing/Stationery
Transport
Telephone
Professional Fees
Capital payments
Loan repayments
Bank charges
Drawings
Total Expenditure
Net cash flow
Opening balance
Closing balance

4. The Start-up Programme – City of Bristol College
B R I A N W S T E E L
developing higher performance
Charlie’s is a small retail operation which has just opened. Her bank have asked for a cash flow and profit
forecast for the next 6 months before they will open a bank account. Charlie finds or estimates the
following information:
Including the £3,000 she has to start the business she believes she will turnover £24,650 made up of £200
in the first month, then £500, 950, 500, 200 and 300. Trade sales on credit terms will bring in £1000, 5000,
6000, 4000, and 3000 but will not start until the second month.
Payments to her creditors will start in month 3 with an initial payment of £3000, followed by payments of
2500, and 2 lots of 2000.
Wages for the six months will be £5502 paid equally each month.
Rent is £250 per month and power is £500 per year payable in two payments starting in month4 there is
also an annual maintenance charge of £200 payable in month 2.
Other costs Charlie knows about include a payment for cards and stationery of £200 payable immediately.
A repair bill on her van which is due in month 2 amounts to £200. Insurance premiums totalling £280 due
in month1 a telephone bill she estimates will be £150 due in month4 and her solicitors bill of £200 which
he has put back until month 6. Water rates of £60 are due in month 3.
She also has to pay for equipment purchased at a cost of £4000 in month 1. Charlie also has a bank loan,
previously agreed which she is attaching to the business and will be making £310 per month repayments
from month 2 but she is accounting for charges which start immediately of £50 per month. She intends to
draw £400 per month for herself for the first 2 months, £500 in the 3rd then 2 lots of £400 then £500
again. She is starting the business with 1000 in her bank.

5. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Jan Feb Mar Apr May Jun Total
Receipts
Cash Sales 200 500 950 500 200 300 2650
Credit Sales 1000 5000 6000 4000 3000 19000
Capitol Introduced 3000 3000
Other Income
Total Receipts 3200 1500 5950 6500 4200 3300 24650
Expenditure
Payments to creditors 3000 2500 2000 2000 9500
Salaries/Wages 917 917 917 917 917 917 5502
Rent/Rates 250 250 250 250 250 250 1500
Water 60 60
Insurance 280 250
Repairs/Renewals 200 200
Heat/Light/Power 250 250
Maintenance 200 200
Printing/Stationery 200 200
Transport 150 150 150 150 150 150 900
Telephone 150 150
Professional Fees 200 200
Capital payments 4000 4000
Loan repayments 310 310 310 310 310 1550
Bank charges 50 50 50 50 50 50 300
Drawings 400 400 500 400 400 500 2600
Total Expenditure 6247 2477 5237 4977 4277 4177 27392
Net cash flow (3047) (977) 713 1523 (77) (877) (2742)
Opening balance 1000 (2047) (3024) (2311) (788) (865) 1000
Closing balance (2047) (3024) (2311) (788) (865) (1742) (1742)

6. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
What is a Profit forecast?
It shows the expected profitability of the business for a trading period –
usually 12 months.
In addition it provides other information to enable the performance of the
business to be measured.

7. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Why produce a profit forecast?
It establishes the key performance measure of the business month by month.
It informs decision making in relation to the management of overheads.
It encourages efficient and effective control over expenditure.
It focuses decision making by presenting financial facts.

8. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Using the cash flow for Susan Brown at Dynamic Fabric complete her profit
forecast.

9. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Jan Feb Mar Apr May Jun Total
Revenue
[A] Cash Sales
[B] Credit Sales
[C] Total Revenue [A+B]
[D]Materials and Stock purchased
[E] Gross Profit [C – D]
Gross profit %age [E/C]100
Overheads
Salaries/Wages
Rent/Rates
Water
Insurance
Repairs/Renewals
Heat/Light/Power
Maintenance
Printing/Stationery
Transport
Telephone
Professional Fees
Capital payments
Loan repayments
Bank charges
[F] Total Overheads
[G] Net Profit before drawings
[E – F]
Net profit %age [G/C]100

10. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Jan Feb Mar Apr May Jun Total
Revenue
[A] Cash Sales 200 500 950 500 200 300 2650
[B] Credit Sales 1000 5000 6000 4000 3000 19000
[C] Total Revenue [A+B] 200 1500 5950 6500 4200 3300 21650
[D]Materials and Stock purchased 3000 2500 2000 2000 9500
[E] Gross Profit [C – D] 200 1500 2950 4000 2200 1300 12150
Gross profit %age [E/C]100 100% 100% 49.6% 61.5% 52.4% 39.4% 56.1%
Overheads
Salaries/Wages 917 917 917 917 917 917 5502
Rent/Rates 250 250 250 250 250 250 1500
Water 60 60
Insurance 280 280
Repairs/Renewals 200 200
Heat/Light/Power 250 250
Maintenance 200 200
Printing/Stationery 200 200
Transport 150 150 150 150 150 150 900
Telephone 150 150
Professional Fees 200 200
Capital payments 4000 4000
Loan repayments 310 310 310 310 310 1550
Bank charges 50 50 50 50 50 50 300
[F] Total Overheads 5847 2077 1737 2077 1877 1677 15292
[G] Net Profit before drawings
[E – F]
(5647) (577) 1213 1923 323 (377) (3142)
Net profit %age [G/C]100 20.4% 29.6% 7.7%

11. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Cash Flow Forecast
Measuring performance
Profitability:
[Gross Profit/Sales]100 = Profit %age

12. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Cash Flow Forecast
Why the percentage changes:
Increased selling prices
Lower material costs
Less waste

13. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Cash Flow Forecast
Reduction in percentage:
Reduced prices
Increased direct costs
Stock losses

14. B R I A N W S T E E L
developing higher performance
The Start-up Programme – City of Bristol College
Cash Flow Forecast
Improving gross margin
Annual sales x increase in gross margin
£200k t/o 1% increase in GMP provides additional £2k profit.