Reezi Unit 5 P3, M1, D1 Group B
P3 - Prepare a 12 month cash flow forecast and analyse it.
Are there any times in the year when Ricky should be worried about his cash flow?
Ricky should be worried about his cash flow on the months of January, February and
July as those are the months when the total payment is greater than the total
receipts, so they are spending more than what they are earning. For example, in July
Ricky’s sales went up to £9,000, but they had a total payment £11,125 this was only
because they had to buy a truck that was for £5,000 and raw materials of £4,500
alongside with other payments. In this month they had a closing balance of -£425.
Another month that Ricky should be worried about should be February as the closing
balance was -£3,575, this means that he is not generating as much money, so for
the next month they will have to start up with that.
Advice Ricky of two actions he could take to reduce the risk of cash-flow problems.
One way Ricky can reduce the risk of his cash flow problems is by reducing the cost
of spending on January. He brought a truck for £20,000, he could simply find a much
cheaper truck for about £10,000. He can even put the truck on finance so they can
get the vehicle now and they pay later, so when they are making sales and profit,
they can slowly pay that off with interest as well. Another advice to reduce the risk of
cash-flow problems can be that Ricky should be more careful and more specific with
where his costs will have towards. This will mean that less money will be spent on
the different types of payments, so for labour, equipment hire and other tools.
P3 - Prepare a 12 month cash flow forecast and analyse it.
Are there any times in the year when Ricky should be worried about his cash flow?
Ricky should be worried about his cash flow on the months of January, February and
July as those are the months when the total payment is greater than the total
receipts, so they are spending more than what they are earning. For example, in July
Ricky’s sales went up to £9,000, but they had a total payment £11,125 this was only
because they had to buy a truck that was for £5,000 and raw materials of £4,500
alongside with other payments. In this month they had a closing balance of -£425.
Another month that Ricky should be worried about should be February as the closing
balance was -£3,575, this means that he is not generating as much money, so for
the next month they will have to start up with that.
Advice Ricky of two actions he could take to reduce the risk of cash-flow problems.
One way Ricky can reduce the risk of his cash flow problems is by reducing the cost
of spending on January. He brought a truck for £20,000, he could simply find a much
cheaper truck for about £10,000. He can even put the truck on finance so they can
get the vehicle now and they pay later, so when they are making sales and profit,
they can slowly pay that off with interest as well. Another advice to reduce the risk of
cash-flow problems can be that Ricky should be more careful and more specific with
where his costs will have towards. This will mean that less money will be spent on
the different types of payments, so for labour, equipment hire and other tools.
