Business Startup Tutorial
Setting the scene
The business which we will look at is a small retail outlet selling products associated with a leisure pursuit which has some seasonality impact.
The proprietor is investing £3500 of his own resources to cover start-up costs and provide some working capital. No other form of financial assistance is being sought.
Like many small retail outlets the largest fixed cost is rent and rates which in this instance is £480 a month.
The client has been negotiating with a number of potential suppliers and has selected five to enable a range of products to be available to customers whether it be beginner or more enthusiastic devotee.By having more than one supplier the client is ensuring the supply of products will be assured although maintaining the correct product mix will require to be managed on an ongoing basis depending on the analysis of product sales.
The suppliers operate on 30-day payment terms.
It is calculated that based on the projected sales that taking into account wholesale prices and special offer discounts that a gross margin of 50% will be realised.
As indicated earlier in the tutorial the cash flow and trading forecast are determined by making a comparison of the sales/revenue forecast for Year1 against the expenditure incurred in achieving this level of sales/revenue. The monthly cash flow projection is also a vital tool to enable the performance of the business to be monitored on an ongoing basis against the business plan projections and also the comparison of the cash inflows and outflows.
Case Study Activity
Obviously in this instance, a small retail outlet, two of the most critical parameters that have an impact on the business are the level of sales and the cost of purchased materials.
In the interactive section below you are provided with a number of ways of looking at the company and its activity.
- The Cash Flow Projection.
- The Trading Forecast.
- Graphical Cash Flow.
- Break-even Analysis.
You have two options: