Cash Flow (AQA GCSE Business)

Sonya has been running Bambino Parties for two years. Last year, she made a profit of £8,000 and now wants to increase the number of parties by 20%.

A friend recently started to work for Sonya on a part time basis. She designs backgrounds for parties and these have proved very popular. Her friend has asked if she can become a partner in Bambino Parties. She is willing to invest £3,000 into the business in return for 50% of the profits and will work full time to help expand the business.

When Sonya takes a booking for a party, she asks for a 10% deposit and then receives the rest of the agreed price after the party. Her suppliers, people who provide venues, catering, and birthday cakes, expect to be paid in advance. She is worried about the effect this will have on cash flow.

Sonya has produced a cash flow forecast.

Figure 2

Ellie Swift is the owner of Swiftly Services. She always dreamed of running her own business, as she wanted to be her own boss and make her own decisions. Swiftly Services offers a wide range of home services, from unblocking sinks to painting and decorating.

Ellie’s parents agreed to lend her the money she needed to start up her business, interest free. They had an informal agreement that she would pay them back what she could afford each month.

Table 2 Cash Flow Forecast for Swiftly Services

After running Swiftly Services from February to May, Ellie was pleased to see that her cash flow forecast had been accurate. However, Ellie’s parents have unexpectedly asked her to repay £1000 a month, starting in June, as they are moving to a new house and need the money quickly. Ellie’s parents are now concerned about how soon they will get their money back. They have told Ellie that she should expand her portfolio of services and provide gardening services over the summer months. Gardening services would include mowing lawns, planting and weeding. They have forecast that this could bring in an extra £1000 cash inflow per month. However, to start offering these services, Ellie would need to spend £2000 on gardening equipment. This would increase her cash outflows. She would also need to hire someone to help her do the extra work.

Ellie Swift is the owner of Swiftly Services. She always dreamed of running her own business as she wanted to be her own boss and make her own decisions. Swiftly Services offers a wide range of home services, from unblocking sinks to painting and decorating.

Ellie’s parents agreed to lend her the money she needed to start up her business interest free. They had an informal agreement that she would pay them back what she could afford each month.

Table 2 Cash Flow Forecast for Swiftly Services

After running Swiftly Services from February to May, Ellie was pleased to see that her cash flow forecast had been accurate. However, Ellie’s parents have unexpectedly asked her to repay £1000 a month, starting in June, as they are moving to a new house and need the money quickly. Ellie’s parents are now concerned about how soon they will get their money back. They have told Ellie that she should expand her portfolio of services and provide gardening services over the summer months. Gardening services would include mowing lawns, planting and weeding. They have forecast that this could bring in an extra £1000 cash inflow per month. However, to start offering these services, Ellie would need to spend £2000 on gardening equipment. This would increase her cash outflows. She would also need to hire someone to help her do the extra work.

Sonya has been running Bambino Parties for two years. Last year, she made a profit of £8,000 and now wants to increase the number of parties by 20%.

A friend recently started to work for Sonya on a part time basis. She designs backgrounds for parties and these have proved very popular. Her friend has asked if she can become a partner in Bambino Parties. She is willing to invest £3,000 into the business in return for 50% of the profits and will work full time to help expand the business.

When Sonya takes a booking for a party, she asks for a 10% deposit and then receives the rest of the agreed price after the party. Her suppliers, people who provide venues, catering, and birthday cakes, expect to be paid in advance. She is worried about the effect this will have on cash flow.

Sonya has produced a cash flow forecast.

Figure 2

Devine Jewellery (DJ) plc is an international business that sells a range of luxury jewellery items such as bracelets, necklaces and rings. The business was started by British jewellery designer Dev Anand who developed a unique selling point (USP) of jewellery that can be personalised with a message or initials. This USP has attracted customers from all over the world. All DJ products are crafted from high quality gold and gemstones. This has enabled DJ to create an exclusive brand image that has attracted wealthy customers. DJ makes a healthy profit but, at times, it has required the use of an overdraft to ensure all important bills are paid on time.

DJ currently only sells its jewellery through the 60 stores it owns. This has allowed DJ to maintain its brand image and the high level of service customers expect. To increase sales, DJ has offered credit to customers spending over £2,000 so they can buy jewellery now and pay later. Many competitors also offer credit. This has enabled customers to purchase expensive pieces of jewellery and pay for them in ten equal instalments. Not all customers have been able to afford the monthly repayments and DJ has spent time and money trying to recover the debt.