Having completed a HND in Landscape Construction and Garden Design, Kay Jones wanted to run her own garden design business. The design process would involve Kay meeting with a client to discuss their needs and carrying out a survey. A second meeting would establish a more precise brief and a budget. Kay would then put together a 30 masterplan, showing drawings and materials. In addition to design, Kay also planned to do all the construction work. She felt that people might spend between 500 and 5,000 on a new garden design in her local area. Kay did not have very much capital of her own, so she needed a bank loan. To obtain a loan she would have to draw up a business plan, including an accurate and realistic cash flow forecast. Kay knew that she would stand a better chance of a loan if she had some orders. She decided to get a job and save, develop some orders in her spare time and then launch the business in April. She lived at home and thought she could save 2,000 before the launch. By February Kay had 5 definite orders for garden designs. She was sure that once she got started people would see her work and orders would follow. However, she did plan to market the business and applied for a listing in Yellow Pages. Table 4 shows the predicted revenue for the first nine months of her business. The following financial information was also gathered.

A bank loan of 3,000 would be needed. Kay would contribute 2,000 of her own savings as capital in April.

A van for 2, 000 would be purchased in April. Tools and equipment for 3,400 would be purchased in April . A laptop computer with specialist design software for 600 would be purchased in April. AYellowPageslistingwillcost100inMay. General overheads would be 400 per month. Advertising will be 100 in alternate months starting in May. Kaywouldtakeout800permonthstartinginJune. Loan repayments will be 200 per month.

(a) Explain the meaning of the term 'cash flow forecast'. (b) Draw up a nine month cash flow forecast for Kay Jones Garden Designs. (c) (i) Comment on the cash position of the business during the nine month period. (ii) What would you expect to happen to the cash position of the business in early 2008? Explain your answer. (d) Once Kay was 'up and running' she had some bad news at the end of April. The van she bought needed some urgent repairs to the value of 1 ,200. A client with a firm 1 ,300 order in June cancelled. Produce an amended cash flow forecast. (e) Do you think the bank would grant a loan based on the amended forecast?

Table 4: Predicted revenue for Kay Jones Garden Designs ( first nine months)

Apr: 2,000 May: 2,100 Jun: 2,000 Jul: 2,500 Aug: 2,500 Sep: 2,000 Oct: 1,000 Nov: 500, Dec: 0