5.5 Cash & Cash Flow Practice Questions

Rowan's Sandwich Bar

Rowan Ellis runs a sandwich bar as a sole trader. Table 1 shows part of the business's cash flow forecast for March.

Table 1

	March
Opening balance	£2 400
Total cash inflows	£9 300
Total cash outflows	£10 150

Text 2 — Bexmoor Garden Centre Ltd

Bexmoor Garden Centre Ltd (BGC) is owned by Duncan Pryor and sells plants, tools and garden furniture from a site just outside Shrewsbury. It also supplies plants and turf to local landscaping firms, who are given 60 days to pay for their orders.

Demand at BGC is very seasonal. Sales are low in January and February, but BGC must pay its suppliers for its spring stock during these months. Last year BGC made a net profit of £26 000, but its bank balance is often overdrawn. Duncan has agreed an overdraft limit of £5 000 with BGC's bank.

Duncan prepares a cash flow forecast every three months. An extract is shown in Table 1.

	January (£)	February (£)	March (£)
Total inflows	18 000	21 500	32 000
Total outflows	24 400	23 000	26 500
Net cash flow	–6 400	?	5 500
Opening balance	3 200	–3 200	?
Closing balance	–3 200	?	?

Table 1

Text 2 — Meadowgate Garden Centre Ltd

Dinesh Raval is the managing director of Meadowgate Garden Centre Ltd, a small garden centre that sells plants, tools and outdoor furniture. Trade is seasonal: sales are slow in January and February and much busier from April onwards.

Meadowgate buys most of its stock for the spring season during February and March. Suppliers are paid 30 days after delivery. In March the business is also due to pay £9 000 for two new polytunnels. Wages of £11 000 are paid every month.

Dinesh prepares a cash flow forecast every three months. Part of the forecast for January to March is shown in Table 1. Total inflow for March is forecast to be £47 300.

	January (£)	February (£)	March (£)
Total inflow	42 000	38 000	47 300
Total outflow	36 500	45 200	51 000
Net cash flow	5 500	–7 200
Opening balance	3 100	8 600	1 400
Closing balance	8 600	1 400

Table 1

Callow & Reed Ltd

Callow & Reed Ltd sells office furniture to businesses across the West Midlands from a warehouse in Walsall. Last year it made a net profit of £86 000. Its customers are given 60 days to pay, while Callow & Reed Ltd must pay its own suppliers within 30 days.

The company has more warehouse space than it needs. From March it will let part of the warehouse to another business, which will pay rent of £2 000 a month. This rent is not included in the cash inflows in Table 1.

In April the company must pay £9 000 for a replacement forklift truck. The directors forecast that this will leave the company with a negative closing balance at the end of April.

Table 1: Part of Callow & Reed Ltd's cash flow forecast for March

	£
Cash inflows	18 400
Cash outflows	21 950
Opening balance	5 200

Greenhill Garden Rooms

Greenhill Garden Rooms is a partnership in Carlisle that designs and builds garden offices. It was set up in 2020 by Rhys Elliot and Carol Innes, who previously worked for a local building firm. A standard garden room is priced at £9 800. Customers pay a deposit of 25% when they place an order and pay the rest when the work is finished, up to ten weeks later.

Greenhill buys timber, glass and insulation from a builders' merchant that expects payment within 14 days. The business employs three joiners who are paid weekly whether or not there is work to do. Demand is seasonal, with very few orders placed between November and February.

In March the partners must pay £4 900 for a replacement delivery van and the annual insurance bill. This payment is included in the March cash outflows in Table 1. Greenhill has never missed a payment to its builders' merchant. The partners are considering arranging an overdraft of £5 000 with their bank to help the business through the winter months.

Table 1: Cash flow forecast for January to March

	January	February	March
Total cash inflows	£14 500	£9 800	£21 300
Total cash outflows	£16 200	£15 400	£18 700
Net cash flow	(£1 700)	(£5 600)
Opening balance	£7 900	£6 200	£600
Closing balance	£6 200	£600

Brackwick Landscaping

Brackwick Landscaping is a partnership based in Carlisle. Gina Shaw and Marek Nowak set the business up in 2019 after working as gardeners for the local council. The partnership maintains gardens for homeowners and has a contract to look after the grounds of two hotels. A standard garden visit costs £45.

The business employs two full-time gardeners, who are paid at the end of each month, and leases a van for £380 a month. Demand is seasonal: between November and February very few homeowners book garden visits. The hotel contract is paid in equal monthly amounts throughout the year, and the hotels pay 30 days after an invoice is sent.

Gina and Marek want to buy a ride-on mower costing £6 500 so that they can bid for larger grounds-maintenance contracts. If they buy it in April, they must pay the £6 500 in full when it is delivered.

Table 1: Cash flow forecast, January to March

	January	February	March
Cash inflows	£4 200	£3 800	£7 600
Cash outflows	£5 100	£4 600	£5 900
Opening balance	£2 300	£1 400	£600
Closing balance	£1 400	£600

Ferrywheel Couriers

Ferrywheel Couriers is a cycle courier business based in Norwich. It was set up in 2021 by sole trader Ama Boateng, who delivers parcels for local shops using electric cargo bikes. Ama employs two part-time riders and rents a small storage unit near the city centre for £420 a month. Shops are charged £4.50 for each delivery made within the city, and most of them pay Ama at the end of the month. Ama also pays for bike servicing, insurance and replacement batteries.

In April two of the shops Ferrywheel Couriers delivers for closed down, so cash inflows for May are forecast to be lower. Ama is considering two options to improve her cash flow: arranging an overdraft with her bank, or asking shops to pay each week instead of at the end of the month.

Table 1: Ferrywheel Couriers cash flow forecast

	April	May
Total cash inflows	£6 400	£5 800
Total cash outflows	£5 950	£6 300
Net cash flow		(i)
Opening balance	£1 200	(ii)
Closing balance		(iii)