MindMap Apps (MMA) sells a monthly revision app subscription. The business plans a major app rebuild to improve long-term capacity. Forecast monthly data and planned capital expenditure are shown below. All figures are in USD.

For this question, use the following formulae:

$$\text{contribution per subscriber} = \text{subscription price per user} - \text{variable cost per user}$$ $$\text{operating surplus} = \text{total contribution} - \text{fixed monthly revenue expenditure}$$

Treat developer support wages, customer service wages and monthly digital advertising as fixed monthly revenue expenditure.

LumaTiles (LT) is a small manufacturer of decorative wall tiles made from recycled glass. For two years LT sold through craft markets and a simple website. Demand from interior designers is now increasing. The owner is considering renting a small workshop, buying a kiln and cutting equipment, hiring two production assistants and paying for regular supplies of glass, packaging and delivery services.

LT has been profitable in some months, but cash inflows are uneven because trade customers often pay several weeks after receiving their orders. The owner is unsure whether to focus finance on long-term assets or on day-to-day operations.

CedarCoast Adventures (CCA) operates guided kayaking tours in a coastal town. Most revenue is earned during the summer. To reduce dependence on seasonal income, CCA is planning to offer winter wildlife tours. The plan would require purchasing insulated safety equipment, modifying a storage building, developing an online booking system, paying guides for additional training, increasing insurance cover and running a winter advertising campaign.

CCA's manager has asked the finance assistant to classify all planned spending simply as “tour development costs” because it would be easier to present to the owner.

AquaDrone Inspections (ADI) is a private limited company that uses drones to inspect bridges and large buildings. ADI has been invited to provide drone inspection services for offshore wind turbines. The work would increase ADI's long-term capacity but would require new equipment and additional day-to-day spending. ADI currently has cash available of USD 96 000.

Forecast data for the wind turbine inspection service for the next quarter are shown below. All monetary figures are in USD; the collection rate is shown as a percentage.

ADI's operations manager believes the new service would improve ADI's reputation with renewable energy companies. However, the finance manager is worried that some customers pay invoices slowly and that ADI may not have enough finance available at the right time.

NovaCare Clinics (NCC) is a privately owned chain of three physiotherapy clinics. The founder is considering changing NCC into a private limited company before opening two more clinics and launching a digital appointment system. The expansion would require treatment equipment, clinic refurbishments, additional therapists, software development, online promotion and higher monthly administration costs.

To attract new shareholders, the founder has suggested presenting very optimistic financial information and classifying some routine operating costs as long-term investment in the expansion. The finance manager is concerned that this approach may mislead potential investors and weaken NCC's financial control.

SilverLine Care (SLC) provides home care services for elderly clients. SLC is applying for a three-year contract from the local authority. The local authority will assess SLC's financial information as well as service quality. It wants evidence that SLC has invested in technology but also that its monthly operating spending is sustainable.

SLC's finance manager is preparing financial information for the application. She has suggested recording staff induction and carers' wages as capital expenditure because this would make revenue expenditure appear lower. The managing director is concerned that this would be unethical and could damage SLC's reputation if discovered.

SLC's recent spending is shown below. All figures are in USD.

The timing of some items and any expected contract cash inflows are not provided.

SLC has a cash reserve of USD 40 000. The managing director believes accurate financial information will help SLC make better decisions, but the finance manager argues that a more favourable presentation may increase the chance of winning the contract.

ReThread Learning (RTL)

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

ReThread Learning (RTL) is a social enterprise that collects donated laptops from large companies, refurbishes them and sells them at low prices to families who cannot afford new devices. RTL also provides free digital-skills workshops for unemployed adults. Any surplus is reinvested into workshops and device donations.

RTL currently operates from a small rented unit. The founder, Amara, wants to open a larger refurbishment hub and training centre in a low-income area. The hub would increase long-term repair capacity, but it would also increase monthly operating costs before sales become regular. Amara is considering changing RTL from an unincorporated organization to a company limited by guarantee to improve its credibility with community funders.

Resource 2 — Selected forecast expenditure for the proposed hub, first year

Resource 3 — Contribution forecast for refurbished laptops

RTL expects to sell each refurbished laptop for USD 160. The replacement parts and packaging cost USD 95 per laptop. This variable cost includes the cost of the initial replacement screens and batteries when they are used. For cash-flow planning, the USD 14,000 initial purchase should be recorded as an upfront inventory cash outflow, not added again to the contribution cost. Amara expects sales of 900 laptops in the first year if the hub opens.

Resource 4 — Social-media statistic

A video showing RTL donating laptops to a local school was viewed 280000 times in one week. However, only 1.8% of viewers clicked through to RTL's donation page.

Resource 5 — Quotation from RTL's finance volunteer

"The hub is affordable only if we separate spending that builds long-term capacity from spending that keeps us operating each month. Community funders will also expect honest, cautious financial information, not optimistic figures designed to make us look stronger."

CareCycles (CC)

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

CareCycles (CC) is a social enterprise that repairs donated bicycles and sells them at low prices to key workers and students. It also trains unemployed young people as bicycle mechanics. CC operates from a temporary garage owned by a charity. Demand has increased because local bus fares have risen.

The directors want to move into a permanent workshop and introduce a monthly maintenance subscription for schools and community health workers. This change would increase CC's ability to repair bicycles, but it would also require finance before subscription income becomes regular.

Resource 2 — Proposed change in operations

CC plans to:

• renovate an empty warehouse into a bicycle workshop;
• buy diagnostic equipment and secure storage racks;
• employ two additional trainers;
• hold free safety workshops in schools;
• introduce a subscription service for community organizations.

Resource 3 — Forecast financial information for the first year after the move

Resource 4 — Social-media statistic

CC has 16000 followers on two local social-media platforms. Posts about affordable bicycles receive high engagement, but posts asking for regular donations receive less than 0.5% response.

Resource 5 — Quotation from a school partner

"CareCycles has changed how our students travel to school. We want CC to grow, but if it spends too quickly on the new workshop and then cannot pay trainers, the training programme will suffer."

FarmLock Systems (FLS) manufactures refrigerated self-service lockers used by small farms to sell produce directly to customers. FLS is considering launching a new modular locker that can be installed outside farm shops. The launch would require new production equipment and design work. FLS would also need to pay additional operating costs in the first quarter.

The management team believes the product could strengthen FLS's position in the agricultural technology market. However, the finance director is concerned that FLS's cash reserve may be insufficient if sales are lower than forecast.

Forecast data for the first quarter are shown below. All figures are in USD. Assume that all forecast sales receipts are collected and all launch costs, including the capital expenditure, are paid during the first quarter, and that there are no other relevant launch-related cash flows.

FLS's operations manager argues that the capital expenditure will improve capacity for several years. The finance director argues that contribution from the first quarter may not be enough to cover both the fixed revenue expenditure and the capital expenditure.

NourishNest Kitchens (NNK)

Read the resources and answer the questions that follow.

Resource 1 — Background of the social enterprise

NourishNest Kitchens (NNK) is a social enterprise that prepares nutritious meals for elderly people living alone. Paying customers buy meal subscriptions, and the surplus is used to provide free meals to low-income elderly residents. NNK currently operates from a church kitchen three evenings a week.

The management team is considering opening a dedicated community kitchen and launching an ordering app. The kitchen would allow NNK to prepare meals every day and reduce waiting lists. However, the project requires significant spending before NNK knows whether enough paying subscribers will join.

Resource 2 — Selected project information

Resource 3 — Forecast contribution from paying meal subscriptions

NNK will charge paying customers USD 72 per week. Ingredients, packaging and delivery costs are forecast to be USD 46 per paying subscriber per week. NNK expects 260 paying subscribers by the end of the first year if the app is successful.

Resource 4 — Social-media statistic

NNK has 12000 followers. A recent post about free meals for isolated elderly people was shared 900 times, but a poll showed that 62% of respondents expected NNK to publish transparent financial information before donating or subscribing.

Resource 5 — Quotation from an NNK trustee

"Some advisers say we should record the launch event and the first three months of wages as investment in the new kitchen, because this would make the project look less risky. I am worried that this would be creative reporting rather than ethical financial practice."