HND Business Managing Financial Resources
Contents
1. Introduction 3
2. Assumptions 3
3. Background 3
4. Question 1 – Has Derek Gorton’s business generated more cash in February than in January? 4
4.1 Answer 4
5. Question 2 -Explain why Derek should produce a financial forecast, and not just take one month’s figures as an indicator for the future. 4
5.1 Answer 4
6. Question 3 – Is the business likely to generate increasing levels of cash in the forthcoming months? 5
6.1 Answer 5
7. Question 4 – Would you advise Derek Gorton to lease the production machine on the basis that working capital can provide the cash payments? 6
7.1 Answer 6
8. Question 5 – What other courses of action might Derek take in order to finance the computer system? 7
8.1 Answer 7
8.1.1 Invoice factoring 7
8.1.2 Working capital (credit from vendor) 8
8.1.3 Long term loan (grace period) 8
9. Bibliography and references 9
1. Introduction
Every successful business needs to monitor its cash flow on a regular basis in order to maintain sufficient funds for operation, identify periods that financing would be required and forecast potential issues with availability of funding. Cash flow forecast is an important tool in business financial management. Purpose of this report is to produce cash flow forecast for Derek Gorton’s business, identify potential issues, and make recommendations regarding financing options for acquiring additional assets for the business.
2. Assumptions
Data for sales and production forecast is available up to the month of May. Until that point, sales, and consequently, production estimates have shown monthly increase with the rate of 500 sets per month. Infinite number of scenarios is available for the period after June, sales figures in which are indicated by May production estimates. For the purpose of the report, it is assumed that the trend of increasing demand will continue indefinitely.
3. Background
Six months into operations, Derek Gorton’s car mat business is growing at a steady pace and the owner
1. Introduction 3
2. Assumptions 3
3. Background 3
4. Question 1 – Has Derek Gorton’s business generated more cash in February than in January? 4
4.1 Answer 4
5. Question 2 -Explain why Derek should produce a financial forecast, and not just take one month’s figures as an indicator for the future. 4
5.1 Answer 4
6. Question 3 – Is the business likely to generate increasing levels of cash in the forthcoming months? 5
6.1 Answer 5
7. Question 4 – Would you advise Derek Gorton to lease the production machine on the basis that working capital can provide the cash payments? 6
7.1 Answer 6
8. Question 5 – What other courses of action might Derek take in order to finance the computer system? 7
8.1 Answer 7
8.1.1 Invoice factoring 7
8.1.2 Working capital (credit from vendor) 8
8.1.3 Long term loan (grace period) 8
9. Bibliography and references 9
1. Introduction
Every successful business needs to monitor its cash flow on a regular basis in order to maintain sufficient funds for operation, identify periods that financing would be required and forecast potential issues with availability of funding. Cash flow forecast is an important tool in business financial management. Purpose of this report is to produce cash flow forecast for Derek Gorton’s business, identify potential issues, and make recommendations regarding financing options for acquiring additional assets for the business.
2. Assumptions
Data for sales and production forecast is available up to the month of May. Until that point, sales, and consequently, production estimates have shown monthly increase with the rate of 500 sets per month. Infinite number of scenarios is available for the period after June, sales figures in which are indicated by May production estimates. For the purpose of the report, it is assumed that the trend of increasing demand will continue indefinitely.
3. Background
Six months into operations, Derek Gorton’s car mat business is growing at a steady pace and the owner
Bibliography: and references Barclays.co.uk, 2015. Business loans over £25,000. [Online] Available at: http://www.barclays.co.uk/Businesslending/Businessloansover25000/P1242597638988 [Accessed 12 February 2015]. Barclays.co.uk, 2015. Business loans up to £25,000. [Online] Available at: http://www.barclays.co.uk/Businessloansoverdraftsandmortgages/Businessloansoverdraftscashflowfinanceandmortgages/Businessloansupto25000/P1242559173581 [Accessed 12 February 2015]. Global-rates.com, 2015. LIBOR - current LIBOR interest rates. [Online] Available at: http://www.global-rates.com/interest-rates/libor/libor.aspx [Accessed 12 February 2015]. Rbsif.co.uk, 2015. Invoice Financing Pricing. [Online] Available at: http://www.rbsif.co.uk/our-pricing/ [Accessed 09 February 2015]. SBS, 2015. Managing Financial Resources & Decisions. Stratford-Upon-Avon: Stratford Business School.