Nimbus Events (NE) organizes conferences. NE expects a cash-flow problem in November because several venue deposits must be paid before customers pay the final invoices. NE is considering two strategies:

• Strategy A: require earlier customer deposits, increasing November cash inflows by 6000. However, some customers may object, reducing December sales by 2000.
• Strategy B: delay an equipment deposit of 7000 until December. The supplier will charge 400 interest in December.

Table 7: NE’s forecast for November before either strategy, figures in USD

Seabright Swim School (SSS) provides swimming lessons for children and adults. It rents swimming pools from local schools and leisure centres. SSS has recently won several profitable contracts to teach swimming in local primary schools. However, the schools pay SSS 60 days after each block of lessons has ended, while SSS must pay instructors weekly and pool rental monthly.

Elena, the owner of SSS, has prepared a cash-flow forecast showing negative closing balances in March and April, even though SSS is forecast to make a profit for the year. Elena is considering two main approaches. The first is to improve cash inflows by requiring schools to pay a deposit before lessons start and by reducing the credit period offered to schools. The second is to reduce cash outflows by cancelling some low-attendance classes, hiring fewer assistant instructors and delaying the replacement of safety equipment. A bank has also offered SSS an overdraft facility, but the interest rate is high.

Oak & Loom (OL) manufactures wooden furniture for hotels and restaurants. OL has a reputation for high-quality handmade tables and chairs. Demand has increased, and several customers have complained about long delivery times. The owner, Mara, is considering buying a computer-controlled cutting machine. The machine would be paid for immediately and would require staff training, but it should reduce waste and allow OL to complete more orders later in the year.

Mara’s accountant has prepared a six-month cash-flow forecast for OL if the machine is bought now. The forecast suggests that OL’s closing cash balance would become negative soon after the purchase, but cash inflows would improve in later months if more orders are completed. Some managers want to buy the machine now to increase future profit. Others think OL should delay the investment until after its busiest sales period or arrange finance rather than paying for the machine immediately.

AeroPods (AP) manufactures wireless earphones. AP’s opening cash balance on 1 January is 12000. AP receives 60% of sales revenue in the month of sale and 40% one month later. There were no credit sales outstanding from December. A bank loan is received in January and interest is paid monthly from February.

Table 6: Forecasted data for AP for January to April, figures in USD

Tidal Threads (TT) is a small online business that prints customized sports shirts for schools. TT is profitable, but many schools pay one month after delivery. TT’s owner, Amira, is considering buying a digital embroidery machine in September to increase future sales and improve profit margins. The machine would be paid for immediately in cash. TT has an overdraft limit of $4000.

Table 1: TT’s cash-flow forecast before buying the embroidery machine, figures in USD

Table 2: Forecast effects if TT buys the embroidery machine in September

HelioPack (HP) manufactures reusable insulated boxes for restaurants that deliver meals. HP’s products are popular because many restaurants want to reduce single-use packaging. HP’s profit margin is expected to improve as output increases. However, most restaurant chains pay 90 days after delivery, while HP’s suppliers of recycled materials demand payment before delivery because HP is still a relatively new business.

HP’s finance director has prepared a cash-flow forecast showing that HP is likely to have negative closing balances during the next quarter. HP is considering three strategies to deal with the cash-flow problem:

• Strategy A: offer restaurant chains a small discount for early payment and require deposits on large orders.
• Strategy B: negotiate longer payment terms with suppliers and reduce inventory orders.
• Strategy C: arrange a short-term bank loan to cover the forecast cash shortage while HP continues to expand production.

The marketing director is worried that some restaurants are price sensitive and may choose cheaper packaging suppliers. The operations manager is worried that reducing inventory could delay orders and damage HP’s reputation for reliable delivery.

SunTrail Kayaks (SK) rents kayaks and offers guided tours on a large lake. Demand is seasonal: April is usually busy, but February and March are quieter. SK must pay insurance and staff costs before the main tourist season begins. The owner, Dev, is worried about a cash shortage and is considering several strategies.

Table 1: SK’s cash-flow forecast before any strategy, figures in USD

Table 2: Cash-flow strategies being considered by SK

CycleLink Kitchens (CLK) – a social enterprise

Read the resources and answer the questions that follow.

Resource 1 — Background

CLK prepares healthy lunches using surplus food and delivers them by electric cargo bicycle to offices. It operates as a social enterprise: paid corporate lunch contracts subsidize free meals and cycle-maintenance training for unemployed young people. Most corporate customers pay 60 days after delivery, but CLK pays riders, trainers and food suppliers weekly. The director says that CLK is forecast to make a profit this year, but she is worried about liquidity.

Resource 2 — Selected cash-flow forecast information

CLK’s forecast for the next six months shows rising sales revenue and a forecast annual operating profit. However, closing cash balances are expected to become negative in the months before large credit customers pay. The forecast also includes a planned cash purchase of refrigerated storage to reduce food waste.

Resource 3 — Quotation from the finance volunteer

“The issue is not whether the lunch contracts are popular. It is whether cash arrives in time to pay wages, insurance and bicycle maintenance.”

Resource 4 — Social-media statistic

CLK has 84 000 followers across social-media platforms after a video about its free community meals was shared by local schools and cycling groups.

Harbour Haven Laundry (HHL) – a social enterprise

Read the resources and answer the questions that follow.

Resource 1 — Background

HHL provides commercial laundry services to hotels and restaurants while employing and training adults who have recently experienced homelessness. HHL pays wages every two weeks and buys eco-friendly detergent in advance. Many hotel customers pay invoices after 45 days. Demand is seasonal: cash receipts are high during the tourist season but fall sharply in the off-season. HHL’s board wants to avoid measures that would reduce trainees’ hours unless there is no alternative.

Resource 2 — Selected cash-flow forecast information

HHL’s forecast for the next four months shows a large off-season cash shortage. Three possible responses are being considered: requiring hotel deposits, negotiating longer payment terms with the detergent supplier, and arranging a short-term overdraft.

Resource 3 — Quotation from the founder

“Our purpose is to provide stable employment and training. A cash-flow solution that damages trust with hotels, suppliers or trainees could weaken the whole enterprise.”

Resource 4 — Social-media statistic

HHL has 23 500 followers on a local community platform; a recent post about trainees gaining permanent work received the highest engagement rate of the year.

OrthoMend Supplies (OMS) manufactures specialist braces and supports for private physiotherapy clinics. OMS is forecast to make a profit in quarter 3, but most clinics buy on credit and pay after 60 days. OMS must pay for materials and wages before receiving much of the cash from sales. The finance director is concerned about insolvency risk and has identified three possible strategies.

Table 1: OMS forecast for quarter 3 before any strategy, figures in USD

Table 2: Strategies being considered by OMS

ReGlow Solar (RGS) – a social enterprise

Read the resources and answer the questions that follow.

Resource 1 — Background

RGS refurbishes used solar lamps and sells them at low prices to families without reliable electricity. Surpluses fund free lamp repairs for rural schools. RGS has been offered a discounted automated testing machine and a small electric van. The operations manager believes the investment would increase output and reduce faulty returns within one year. The finance manager is concerned that paying for both assets now could create a cash-flow shortage before higher sales are received.

Resource 2 — Selected forecast information

RGS’s forecast compares the next nine months if it buys the testing machine and van immediately with an alternative of leasing the van and delaying the testing machine purchase. The forecast shows the timing of asset payments, expected cash receipts from lamp sales, expected grant receipts and monthly closing cash balances.

Resource 3 — Quotation from a school partner

“The free repair service matters because a broken lamp can stop evening classes. But if RGS cannot buy replacement parts on time, the service will fail.”

Resource 4 — Social-media statistic

A campaign showing pupils studying under repaired lamps reached 410 000 views in one week and generated many comments asking how to donate.