How to play the game

You will have to calculate your cash flow forecast based on predicted sales for the coming year. Remember that this is merely a forecast of the expected income and expenditure over that time period - what actually happens may be quite different!

When you have completed the forecast, you will have to look at the position that the business finds itself in and make changes to the business to ensure that you are able to carry on trading throughout the year.

The nature of real businesses, however, is that despite careful planning, things happen during the trading year that can disrupt plans but which have to be managed as they occur. During the trading year, random events could spring up to challenge your ability to manage the business through such unforeseen situations. Success in the game will be achieved if you manage to get through the year without facing closure!

To enable you to continue trading, therefore, you must try to ensure that the money coming into the business from sales and other sources, for example, loans, overdraft facilities and so on are sufficient to cover the costs of the inputs used in the business. If you are unable to manage this cash flow you will be warned that you are facing difficulties and ultimately will be forced to cease trading.

To help in your decision making through the activity, you will need to be mindful of the key information given below. It is important to remember that any decision you take will have consequences elsewhere on your business and will affect your actual cash flow.

More detailed intructions are available.

Key information

• Loan payment. Gearing ratio = 60%
  The gearing ratio can rise to 85%.
• Interest rate on loans = 9.5%
• Loan = £600,000
• Total assets = £1,000,000
• Number of workers = 20
• Labour cost = £250 per week per worker
• Worker productivity = 210 pots per month
• Purchase price of vehicle = £12,800
• Sale price of vehicle = £6,000
• Vehicle deliveries = average of 4,830 pots per year per vehicle
  Maximum capacity of each vehicle = 12,480 per year based on 240 annual working days or 52 pots per day.
• Vehicle deliveries = 1040 pots per vehicle per month
• Contribution of each vehicle to total cost of each pot = £2.65
• Current cost of pots = £6.90 each (€10)
• Exchange rate £1 = €1.445
• Selling price per pot = £35
• Overdraft facility: maximum limit = £75,000, in steps of £15,000
  Interest is charged at 20% and the overdraft facility returns to 0 at the start of each month.

Below is a statement of the predicted sales of pots during the coming year. Use the key information and the predicted sales to complete the cash flow forecast sheet. Remember....

• Receipts can be found by multiplying the expected sales volume by the price of the pots.
  For example: January predicted sales * Selling price per pot = January Receipts
  800 * 35 = 28000
• The net cash flow is the difference between the receipts and the total payments.
  For example: January receipts * January total payments = January net cash flow
  28000 - 89820 = -61820

Predicted Sales

Cash Flow Forecast

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