Cash Flow Test

Peter Piper has set up a business picking pepper and selling it. He needs get a loan from the bank to finance the pepper picking project. He has seen his bank manager who has told him to make a cash flow forecast for the next 6 months. This is the key information.

His business will start with a bank loan of £500 in March. He predicts sales at first to be slow; he will only attract £200 of orders in March. Peter finds his material costs are half of whatever his sales are. E.g. his material costs in March are half of £200.

Peter realises the power of advertising and so plans to place a series of adverts in the local News Guardian at a cost of £400 per month.

His bank manager has calculated that he will have to pay £100 per month to pay off his loan.

His sales pick up in April, rising to £800 and again to £1000 in May. June and July is the main pepper picking period, producing promising figures of £1500 in both months.

He intends to employ his pepper picking partner Paula to help pick the peppers. He will only pay her £50 per pepper picking month.

Complete the Cash Flow forecast  March April May June JulyReceipts          Bank Loan          Sales                     Total                     Payments          Materials          Wages          Loan Payment          Advertising                     Total                     Opening Balance          Closing Balance