Unit 5 M2

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In this assignment I’ll be analysing the 12 month cash flow forecast that I had created in P3. From this this I’ll identify potential problems that the business may experience. A cash flow forecast is a pattern of inflows and outflows over a time period. Forecast means to estimate or calculate in advance. By a business conducting a cash flow forecast they can then predict future sales and costs that will occur in the business. By looking at Lily’s cleaning services cash flow forecast there’s a series of problems that may hinder future profits for the company. Below I will explain them in detail: • Fluctuations – Excluding January being the month that the company received an investment and bank loan adding up to £22,000 sales have been constant with little fluctuations. From February to June Lily’s cleaning service managed to generated sales of £5000 per month after which it declined by £1000 resulting in sales of £4000, this last lasted for a time period of two months. This could have been due to an increase in people going on holiday. Statistics show that during July and August people are more likely to organise holidays. This had a negative effect on the business as less services would be needed, resulting in a loss of sales. In the following months the business saw an increase of sales leading to £6000 from November to December. Whilst this is good for the company these figures are only predictions and may not happen in real time. Without the injection of £22,000 at the beginning of the year the business wouldn’t have seen profits of £9,560 in December. This could lead to future problems in the business as profits may decrease and capital expenditures may rise plus the payment of interest from the loan. Over a time period of 2 to 3 years the company could see a significant fall in profits without the aid of external sources of income such as another loan. •

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