You are to prepare a 12-month cash flow forecast for Sharma and Ryan based on the information presented below. Sales and purchases for the 12 months are predicted to be as follows. Sharma and Ryan are the only two shareholders each investing £12,500 of their own money into the business. In addition to this they secured a bank loan for £80,000 to be paid back in monthly instalments of £1,000. All of the capital invested was to be used to buy capital equipment to the value of £105,000.
This was broken down into machinery worth £85,000 and fixtures and fittings worth £20,000. Sharma and Ryan had also agreed with their bank manager that they would be allowed an overdraft of up to £20,000 at a charge of 1.5 per cent per month whenever their account was overdrawn. They planned to rent a small factory unit at a cost of £25,000 per year to be paid in equal monthly instalments. They estimated that monthly rates on top of this would be £1,700. Sharma and Ryan planned to employ themselves along with two other employees, but were aware of the fact that money might be tight, so decided to pay themselves the same salary as the other employees – £19,000 per year. Other expenses were estimated to be as follows:
● telephone £300 per quarter
● post £50 per month
● courier charges £1,500 per month
● advertising £160 per month plus an additional £500 per quarter
● heat and light £500 per month
● insurance £1,000 per year, payable in January