Financial Plan
Sales forecast for the year ended 31 December 2002
January £38,417
- February £38,417
- March £42,686
- April £42,686
- May £42,686
- June £469,55
- July £46,955
- August £46,955
- September £42,686
- October £42,686
- November £42,686
- December £44,820
£518,635
Sales forecast limitations
Businesses are always trying to predict the future. This helps with planning and beating competitors. One simple way of predicting the future is to assume that it will be just like the past. Another way is forecast the sales figures using primary research. For the immediate future this may be very realistic. However such stability and predictability are rare. The values of data plotted over time, called time-series analysis, can vary because of seasonal influences and also because of genuinely random factors, which can never be predicted.
Cash Flow Forecast
Cash flow is a movement of cash into and out of a business.
A cash flow forecast sets out the anticipated cash inflows and cash outflows over the coming months. Each column shows money coming into and out of the business in that month. The forecast then shows the effect of each month’s cash flows upon the firm’s cash balance/total. It is like a mini bank statement. One essential rule when constructing a cash flow forecast is that money is shown when it is received or paid. The cash flow forecast will show if there is sufficient cash available each month. A negative cash flow in any time period will indicate that the company has insufficient funds. If the firm has an overdraft facility, this may be sufficient to cope with the period of negative cash flow. If not, preventative action must be taken quickly. Banks always request a cash flow forecast when considering an application for a loan from a new business, such as our restaurant. They do that in order to insure that the business: has enough cash to enable it to survive is able to pay the interest on the loan will be able to repay the loan is aware of the need for cash flow management.
Cash flow management is a vital ingredient in the success of any small business. For a new business, cash flow forecasting helps to answer key questions. Is the venture viable? How much capital is needed? Which are the most dangerous months?
Nevertheless, completing a cash flow forecast does not ensure survival. Consideration needs to be given to its usefulness and limitations. It must be remembered that cash flow forecasts are based on estimates. These estimates are not just amounts but also timings. The firm must be aware that actual figures can differ wildly from estimates – especially for a new, inexperienced firm. When preparing cash flow forecasts managers need to ask themselves “what if?” A huge mistake is to only look at one central forecast. Far better to look at best case and worst-case scenarios. Spreadsheet allow for easy manipulation of data. It is easy to see the impact of single and multiple changes to the forecast figures. This should help to reduce the risks. It does not guarantee results. Continual awareness of the economic and market climate is just as important as number crunching.
Notes to accounts
- Sales - these are the only receipts of the business.
- Purchases – purchases will be about 30% of the forecasted sales
About 35% will be cash purchases. This is because some of the products will be bought in small amounts and therefore it will be quite hard to get credit for these products. E.g. very expensive and old win
Other 65% will be credit purchases and will be allowed 2-month credit. Therefore there won’t be any credit purchases payments during the first two months.
- Rent – the rent for the restaurant will be approximately £90,000 p.a. as I stated above in the Marketing plan. It will be paid each month and includes rent of two floors as well as business rates.
- Loan interest – this will be 10% and will be paid monthly.
- Wages and salaries – have been estimated earlier in the Human Resource Section of Marketing Plan.
- General expenses – these are very small expenses which hard to predict for the first time.
- Wastage of materials – this is the expense of the products, which might become out of date and won’t be used in the future.
- Other expenses – these are expenses such as gas or electricity, which I predicted referring to the figures of other restaurants.
- Advertising – estimated in Marketing Plan section.
- Payments for property are split over three years and are paid on quarterly basis. Property is shown as a Fixed asset in the companies Balance Sheet and is depreciated on straight-line basis ( %5)
