EBM N4 | Essential Revision Guide 1 | P2

Business Plan Assessment

The following questions are based on the business plan that you have completed during the semester.

Question

Choose a business from the list below:

• Household services
• Beauty spa
• Stationery shop

The business chosen is a Beauty Spa

Question

Give a suitable name for the business you have chosen.

The name of the beauty Spa is “Glow & Relax Spa“

Question

What form of ownership is the business you have chosen

The form of ownership chosen is Partnership.

Partnership

A partnership is a business owned by two or more people who share responsibilities and profits. This form of ownership allows for greater collaboration and resource sharing, making it an excellent choice for businesses like a beauty spa. Its advantages include

More Capital Investment

One of the key advantages of a partnership is the ability to raise more capital. Each partner contributes funds, which can be used to grow and improve the business. This financial support makes it easier to invest in high-quality equipment, marketing, and staff training.

Shared Responsibilities

With multiple owners, business responsibilities can be divided based on each partner’s strengths and expertise. For example, one partner might handle finances and operations, while another focuses on customer service and marketing. This division of work reduces individual workload and increases efficiency.

Diverse Skills and Expertise

A partnership benefits from the combined knowledge and experience of multiple individuals. Different partners bring different skills, such as financial management, beauty industry expertise, or marketing strategies. This diversity allows for better decision-making and problem-solving.

Easier to Raise Funds

Banks and investors are more willing to provide financial assistance to a partnership than a sole proprietorship. Since multiple people are involved, there is a shared financial responsibility, reducing the risk for lenders and making it easier to secure loans.

Business Continuity

A partnership allows for greater stability compared to a sole proprietorship. If one partner leaves or passes away, the business can continue operating (depending on the partnership agreement). This continuity ensures that the spa can maintain its customer base and reputation even if ownership changes.

Question

Knowing your target market is extremely important as it allows you to know their targeted market demands. Discuss your business target market under each of the following headings:

Glow & Relax Spa shall strategically target the following market segments to ensure its services align with the needs and preferences of its customers.

Level of Education

Glow & Relax Spa shall cater to individuals with various educational backgrounds, ranging from high school graduates to university-educated professionals. Educated individuals, especially professionals, are more likely to be aware of the benefits of self-care and wellness. This group values high-quality treatments, skincare solutions, and relaxation services that promote a healthy lifestyle.

Level of Income

The spa shall primarily focus on middle to high-income earners, as they are more willing to invest in premium self-care treatments. However, to accommodate a wider audience, Glow & Relax Spa will offer a range of services at different price points, ensuring accessibility for clients with varying financial capabilities. Special promotions, loyalty programs, and package deals shall also be introduced to attract and retain clients from different income levels.

Female/Male

While Glow & Relax Spa shall primarily attract female clients, it will also target the growing male grooming and wellness market. Many modern men are increasingly interested in skincare, stress-relief treatments, and grooming services. The spa shall offer customized treatments such as deep-tissue massages, facials, and beard-care services to meet the needs of male clients while maintaining a luxurious experience for female customers.

Area

The location of Glow & Relax Spa will determine the type of customers it attracts. If situated in a high-end commercial or urban area, it will serve business professionals and residents who prioritize self-care. A spa near a shopping mall, corporate offices, or fitness center will attract clients looking for relaxation before or after work, shopping, or workouts. Additionally, the spa will target tourist areas, appealing to travelers seeking rejuvenation and wellness experiences.

Age

Glow & Relax Spa shall serve clients across different age groups, each with unique spa needs:

• Young adults (18-30 years old): This group will be interested in skincare treatments, facials, and beauty-enhancement services, including acne treatments and relaxation therapies.
• Middle-aged clients (31-50 years old): This segment will seek anti-aging treatments, stress-relief massages, and advanced skincare solutions to maintain youthful and healthy skin.
• Older clients (50+ years old): Seniors will be drawn to pain-relief therapies, aromatherapy massages, and relaxation treatments that help with muscle tension, circulation, and overall well-being.

Question

Which factors should you consider when choosing a location for the business?

When choosing the ideal location for Glow & Relax Spa, several key factors must be considered to ensure longterm success. The following factors should be taken into account when selecting the best site for the Spa.

Proximity to Public Transport

Choosing a location near a bus stop or public transport hub for Glow & Relax Spa would ensure accessibility for customers who rely on public transport. This is especially important for clients who do not drive, making it easier for them to visit the spa regularly.

Visibility from the Road

A location close to a main road would make Glow & Relax Spa highly visible to potential customers. With good visibility, people passing by will become aware of the spa’s presence, and it will be easier for clients to find, enhancing foot traffic and attracting spontaneous walk-ins.

Advertising Board Visibility

An advertising board visible from the road would help Glow & Relax Spa market its services effectively. The sign could showcase special promotions, services offered, or simply communicate the spa’s luxury and relaxation theme, drawing more customers in.

Competition in the Area

It’s essential for Glow & Relax Spa to analyze the competition in the area. Being located near other beauty and wellness businesses, like salons or fitness centers, could be an advantage by creating a wellness hub. However, too many competing spas nearby might make it challenging to attract customers.

Complementary Businesses

Choosing a location near complementary businesses would work well for Glow & Relax Spa. For example, being near gyms, hair salons, or high-end boutiques would attract customers who value self-care and wellness, providing more opportunities for cross-promotion and a steady flow of potential clients.

Customer Waiting Experience

It’s important for Glow & Relax Spa to ensure that if customers need to wait, the environment is comfortable and engaging. Nearby cafes, lounges, or even a cozy waiting area inside the spa would make customers feel relaxed and valued, ensuring they are happy while waiting for their appointment.

Parking Availability

Having ample and secure parking would make it more convenient for Glow & Relax Spa clients who drive to the spa. This factor is crucial in attracting customers who prefer to drive rather than use public transport, ensuring they have a stress-free experience when they arrive.

Proximity to Target Market

Glow & Relax Spa should be located near its target market to maximize convenience. Being close to high-income residential areas, office parks, or commercial districts ensures that the spa is easily accessible to those seeking wellness services after work or on weekends, aligning with the preferences of its clientele.

Condition of the Buildings

The physical condition of the building where Glow & Relax Spa operates is essential for creating a welcoming and professional image. A well-maintained, attractive building adds to the luxury experience the spa offers and boosts customer confidence in the quality of service they will receive.

Question

Design a trademark for your business and explain why you have chosen that specific design

[Glow & Relax Spa Logo]

Relax, Rejuvenate, and Glow with Glow & Relax Spa

Dear Harriet

Are you feeling stressed, exhausted, or simply in need of some self-care? At Glow & Relax Spa, we specialize in helping you unwind and rejuvenate. Whether you’re looking for a soothing massage, a refreshing facial, or a full-body treatment, we offer the perfect escape to refresh both body and mind.

We know how important it is to take time for yourself. At Glow & Relax Spa, we offer a range of luxurious treatments designed with your relaxation in mind. Picture yourself sinking into a tranquil environment while our expert therapists pamper you with high-quality treatments. From our signature Glow Facial to our stress-relieving deep tissue massages, every experience is tailored to meet your unique needs.

For a limited time only, we’re offering a 20% discount on your first visit! Don’t miss out on this special offer to treat yourself to a luxurious spa experience at a price that can’t be beaten.

Here’s a glimpse at the incredible benefits you can expect when choosing Glow & Relax Spa:

• Stress Relief: Our soothing massages and calming atmosphere will melt away your stress.
• Radiant Skin: Rejuvenating facials and skin treatments designed to leave you glowing.
• Complete Relaxation: With our serene environment and expert care, you’ll leave feeling refreshed and revitalized.

At Glow & Relax Spa, we are committed to providing you with an exceptional experience that leaves you feeling rejuvenated and glowing. Let us show you why so many people trust us with their wellness and beauty needs.

Don’t wait! to book your appointment today or call us at 0873456879 to schedule your visit. Visit our website or stop by at 24 Selby Avenue to take advantage of this exclusive offer.

We look forward to helping you unwind and glow at Glow & Relax Spa.

Sincerely,
Johannes

Marketing Manager

Glow & Relax Spa

Question

Which techniques would you use to improve immediate sales in your business?

Increasing immediate sales is crucial for the success of any business, and Glow & Relax Spa can achieve this by implementing effective promotional strategies as outlined below

1. Coupons

Coupons are an excellent way to attract both new and returning customers. Glow & Relax Spa can offer discount coupons for first-time visitors, such as “Get 20% off your first spa treatment.” To encourage loyalty, the spa can introduce repeat visit coupons, for example, “Book three sessions, get the fourth free!” Additionally, referral coupons can boost sales by rewarding customers who bring a friend, such as “Refer a friend and both get R50 off your next visit!” These coupon strategies will help drive immediate bookings and customer engagement.

2. Competition

Hosting competitions can create excitement and attract new customers. Glow & Relax Spa can run a social media contest where participants share a post, tag friends, or comment to win a free spa treatment. In addition, an in-spa lucky draw can be organized, where customers who book a service within a specific period stand a chance to win a deluxe spa package. Another idea is the “Glow Makeover Challenge,” where participants submit transformation stories, and the winner receives a premium spa experience. These competitions increase brand visibility and encourage bookings.

3. Free Samples

Offering free samples allows customers to experience Glow & Relax Spa’s high-quality products and services, encouraging them to make a purchase. Small skincare samples of products used in facials or massages can be given to clients after their treatment. The spa can also provide free 5-minute chair massages or hand treatments at malls or wellness events to attract new customers. Additionally, trial-size lotions, essential oils, or facial masks can be included with every full-priced treatment, enticing customers to return for more.

4. Consumer Bargains

Special bargains and deals encourage customers to book services immediately. Glow & Relax Spa can offer limited-time package deals, such as “Book a facial and get a free hand massage.” Introducing happy hour discounts during off-peak hours, for example, “Get 30% off all treatments from 10 AM to 2 PM,” can help fill appointment slots. Another effective strategy is bundle discounts, where customers get a percentage off when booking multiple treatments, such as “Buy 5 massage sessions and save 15%.” These bargains create urgency and increase customer spending.

5. Demonstrations and Sampling

Live demonstrations and hands-on sampling help customers understand the value of the spa’s treatments. Glow & Relax Spa can host free skincare workshops, where professionals demonstrate facial routines and allow participants to try products. Additionally, the spa can set up live massage or facial demonstrations at wellness events to attract new customers. Offering a short preview treatment, such as a mini facial or massage, before a customer commits to a full session can also encourage them to make a purchase. These strategies help showcase the spa’s expertise and build customer trust.

6. Promotional Gifts

Branded promotional gifts create a lasting impression and encourage repeat visits. Glow & Relax Spa can give away small branded spa accessories, such as scented candles, bath salts, or sleep masks, to customers who purchase premium packages. Offering a birthday gift, such as a discount or free add-on service, will make customers feel valued and increase their likelihood of booking again. Additionally, providing a “Welcome Gift” (e.g., a small essential oil or a relaxing face mask) to first-time visitors can enhance their experience and encourage loyalty. These gifts not only make customers feel appreciated but also increase brand recognition.

By implementing these strategies, Glow & Relax Spa can effectively boost immediate sales, attract new customers, and build long-term relationships with clients.

READ the following text and answer the questions below

Lisa runs a stationery shop in the heart of King William’s Town, making it easily accessible to customers. She provides high-quality stationery at affordable prices, attracting a steady customer base. Since adding a uniform department to her store, her business has experienced significant growth. As a result, she is considering expanding her current shop and potentially opening a new branch in East London, where she can offer her services in a more developed area.

Question

Complete a personal resources analysis of Lisa’s stationery shop and give examples of each resource.

Understanding her personal resources will help Lisa make informed decisions about expanding her current shop or opening a new branch in East London. This assessment will outline how each resource contributes to her business success and future development. Below is a personal resources analysis of Lisa’s stationery shop.

Knowledge

Lisa has the expertise required to successfully run and expand her business. Her experience in the stationery industry allows her to understand product demand, supplier relationships, and customer preferences. Additionally, her business management skills help her effectively handle stock control, pricing strategies, and customer service. This knowledge positions her well for business growth.

Skills

Lisa possesses essential skills that contribute to her business success. Her financial management skills enable her to control expenses, set competitive prices, and maximize profits. Additionally, her marketing skills help attract customers through promotions and social media, increasing brand awareness and boosting sales. These skills are crucial for expanding her business and maintaining a competitive edge.

Contacts

Strong business connections support Lisa’s operations and potential expansion. Her supplier relationships ensure access to high-quality stationery and uniform products at competitive prices. She has also built relationships with local schools, which could secure bulk orders and steady revenue. Expanding her network will be beneficial as she considers opening a new branch.

Funds

Financial resources are key to business expansion. Lisa’s current business profits provide a solid foundation for growth. Additionally, she may have access to bank loans or business grants to support the costs of expanding her existing store or opening a new branch. Proper financial planning will be essential to ensure a smooth and successful expansion.

Question

Complete a SWOT analysis of Lisa’s stationery shop with TWO examples of
each component.

A SWOT analysis helps identify the key factors affecting Lisa’s stationery shop’s growth and success. By evaluating its strengths, weaknesses, opportunities, and threats, Lisa can make informed decisions about expanding her business and addressing potential challenges.

Strengths

Lisa’s stationery shop has several strengths that contribute to its success and growth potential.

• High-Quality Products: The shop offers high-quality stationery at affordable prices, which has helped attract a loyal customer base. Customers value the reliable and durable products, making them more likely to return.
• Established Reputation in Local Area: Lisa has built a strong reputation in King William’s Town, especially after introducing a uniform department. This department has helped the business grow and expanded its customer base, particularly among local schools and institutions.

Weaknesses

There are also some weaknesses that Lisa’s business must address to ensure continued growth.

• Limited Space: The shop’s physical space is currently limited, which could restrict product variety and customer experience. This limitation may hinder Lisa’s ability to expand and display new products or offer more services.
• Dependence on Local Market: Lisa’s business is heavily reliant on the local customer base in King William’s Town. The lack of diversity in customers outside the local area may limit growth potential and reduce exposure to new market opportunities.

Opportunities

There are several opportunities for growth and expansion that Lisa could explore.

• Expansion into East London: Opening a new branch in East London, a more developed area, could allow Lisa to tap into a larger and more diverse market, which could significantly increase sales.
• Online Sales Platform: The rise of e-commerce offers an opportunity to expand the business beyond the physical store. Launching an online platform could provide access to a broader customer base and cater to the growing demand for online shopping.

Threats

Several external threats could impact Lisa’s business if not managed carefully.

• Competition from Larger Stores: Large retail chains and online stores, which offer stationery and uniforms at lower prices, pose a significant threat to Lisa’s business. These competitors have the ability to undercut prices and offer more extensive product ranges.
• Economic Downturn: An economic recession or downturn could affect customer spending power, especially in a smaller market. If customers reduce their purchases, it could result in a decline in sales for Lisa’s shop.

By identifying these strengths, weaknesses, opportunities, and threats, Lisa can make strategic decisions to maximize her business’s potential and mitigate risks.

Question

Which FIVE factors can influence Lisa’s stationery sales?

New Product in the Market

New product in the market: Customers may become satisfied with new products and start buying them rather than existing products. This can lead to a decrease in demand for the products Lisa currently offers, especially if competitors introduce innovative or more appealing options.

Lower Price Offered by Competitors

Lower price offered by competitors: If customers can buy products at a lower price from competitors, they may shift to new suppliers. This can significantly impact Lisa’s sales, especially if competitors are offering similar or better quality products at more affordable prices.

Cost Price of the Product or Service

Cost price of the product or service: A higher cost price may lead to an inability to compete with a competitor. If Lisa’s cost price is higher than that of her competitors, it may force her to increase her selling prices, making her products less attractive to customers and reducing her competitiveness in the market.

Supplier

Supplier: If Lisa uses a different supplier from her competitors, it may influence customers’ demand for her product. A supplier offering better-quality products, more reliable service, or competitive prices can help increase customer satisfaction and sales. Conversely, a supplier with lower quality or higher prices may negatively affect customer demand.

Selling Price

Selling price: The price should be high enough to make a profit and low enough to attract customers and generate sufficient sales. Striking the right balance in setting the selling price is crucial—too high, and Lisa may lose customers; too low, and she may not make enough profit to sustain the business.

Question

Explain SIX factors that Lisa must consider when developing a selling technique for her stationery shop.

Lisa can develop a selling technique that is both effective and customer-focused, ultimately leading to increased sales and customer satisfaction. The following selling technique can be utilised

1. Approach

When developing a selling technique, approach is crucial. Lisa should aim to develop a friendly relationship with customers. This creates a welcoming and comfortable environment that encourages customers to return to the shop. Building rapport helps foster trust and loyalty, which are essential for long-term business success.

2. Interview

Interview involves allowing customers to talk more about their needs and preferences. By asking open-ended questions, Lisa can gain valuable insights into what the customers are looking for. This will help her tailor her sales pitch to meet their specific needs and increase the likelihood of making a sale.

3. Demonstration

A key part of the selling technique is demonstration. Lisa should show the features and benefits of the product to customers. By explaining how a product works and highlighting its advantages, Lisa can help customers understand the value of the products, making it easier for them to make a purchasing decision.

4. Validate

Validate involves giving references or testimonials from other customers who have purchased and enjoyed the products. Lisa can share positive feedback from satisfied customers or highlight well-known brands in her store. This provides social proof, increasing the credibility of the products and boosting customer confidence in their purchase.

5. Negotiate

In the negotiate phase, it’s important for Lisa to listen to customers’ objections. By understanding their concerns or reasons for hesitation, Lisa can address them effectively, offering solutions or compromises where possible. This not only helps to overcome barriers to purchase but also demonstrates good customer service.

6. Close

Finally, close is a critical stage where Lisa should ask customers to make a decision. After addressing all their concerns and highlighting the benefits, Lisa should encourage the customer to finalize the purchase. This could be done through a direct call to action, such as asking, “Are you ready to make your purchase today?”

Question

List the aspects of financial management

The following aspects of financial management play a vital role in managing a business’s finances, and help to operate efficiently, stay profitable, and grow in the competitive market.

Acquiring Funds: Acquiring funds involves determining the amount of funds needed and the ratio between own funds and borrowed funds. This ensures that the business has sufficient capital to meet its needs while maintaining a healthy balance of financial resources.

Determining Fund Usage: Determining the way in which funds will be used is a critical aspect of financial management. Allocating funds effectively ensures that capital is invested in the right areas, such as product development, marketing, and expansion.

Asset Planning: Determining the number of fixed and current assets needed helps the business ensure that it has the necessary resources for day-to-day operations and long-term growth. This includes machinery, office supplies, and inventory.

Creating Business Policy: Creating the current policy of the business involves establishing guidelines and strategies for managing finances. This policy provides clarity on how financial resources are allocated and managed across the business.

Maintaining Record-Keeping System: Maintaining a record-keeping system is essential for tracking all financial transactions. A well-organized record system ensures transparency, accountability, and easy retrieval of financial data when needed.

Managing Cashflow: Managing cashflow involves ensuring there is sufficient liquidity to meet the business’s operational needs. Effective cashflow management helps prevent financial crises and ensures smooth daily operations.

Compiling Financial Statements: Compiling financial statements such as balance sheets, income statements, and cash flow statements is important for assessing the business’s financial performance. These statements provide a clear picture of the company’s financial health.

Analyzing Financial Statements: Analyzing and interpreting financial statements helps identify trends, assess profitability, and detect potential financial issues. This analysis enables informed decision-making for the business’s future financial strategies.

Exercising Security Control Over Cash Received: Exercising security control over cash received ensures that all incoming funds are properly safeguarded. This control minimizes the risk of theft or misappropriation of company funds, ensuring financial integrity.

Question

Using the information provided, draw up an estimated cash flow statement for the period from January to April . The business had a favorable bank balance of R3,500 at the beginning of January.

Monthly Estimates:

Additional Information:

• Delivery Vehicle: The business purchased a delivery vehicle in January, paying a R7,000 deposit. Monthly installments of R800 will be paid for the next two years.
• Sales on Credit: 30% of all sales are on credit, and debtors usually pay 30 days later.
• Van Sale: In March, an old van will be sold for R2,000 in cash.
• Computer Purchase: In March, a new computer will be purchased with a deposit of R1,000, followed by monthly installments of R500 for the next two years.

Average Expenses Per Month:

Based on this information, create the estimated cash flow statement for the specified period.

Introduction:

Cash flow statements are essential for any business, helping the owner track the money coming in (income) and going out (expenses). This question will guide you through preparing a simple cash flow statement using an anonymous business example. We will cover the various components, how to calculate the available cash, and how to track the business’s financial health month by month.

Key Concepts:

1. Opening Balance: The opening balance is the starting amount of cash a business has at the beginning of a given period. This could come from the previous month’s remaining balance or an initial investment.
2. Cash Sales: Cash sales refer to the amount of money received from customers who pay immediately, in cash or by card. It’s essential for tracking daily revenue.
3. Credit Sales: Credit sales represent money owed to the business for products sold on credit. Typically, customers pay these within a set time (e.g., 30 days).
4. Other Income: Other income may include income not directly related to regular sales, such as proceeds from selling an asset like a vehicle.
5. Total Cash Available: This is the total amount of cash available to the business after accounting for cash sales, credit sales, and other income. It’s the sum of the opening balance and inflows.
6. Expenses: These include regular operational costs such as rent, wages, utilities, and other recurring payments like loan installments.
7. Cash Purchases: These represent the money spent by the business on goods or services needed for day-to-day operations.
8. Other Payments: Any additional payments, like deposits on assets (e.g., delivery vehicles or equipment), or loan repayments.
9. Total Cash Payments: The total outflow of cash, combining monthly expenses, cash purchases, and other payments.
10. Closing Balance: This is the final amount of cash a business has at the end of the period, calculated by subtracting total cash payments from the total cash available. This balance becomes the opening balance for the next period.

Calculations for Each Month

January Cash Flow

January Cash Flow – Detailed Notes

This cash flow statement tracks the movement of money in and out of the business during January. Each section below provides an analysis of the financial activities for the month.

1. Opening Balance: R3,500

• This is the cash the business had at the beginning of January.
• A positive balance of R3,500 means the business started the month with money available in its bank account or as cash on hand.

2. Cash Inflows (Money Coming In)

Cash inflows refer to the money the business received during January.

a) Cash Sales – R4,200

• The business made total sales of R6,000 in January.
• Only 70% of these sales were made in cash, meaning customers paid immediately.
• Calculation:

6,000 × 0.70 = R4,200

b) Credit Sales – R1,800 (Not included in January’s cash flow)

• 30% of the R6,000 total sales were on credit, meaning customers will pay later.
• Calculation:

6,000 × 0.30 = R1,800

• Since this amount will only be received in February, it is not included in January’s total cash inflow.

c) Other Income – R0

• No additional income, such as rent, interest, or side earnings, was received in January.

Total Cash Inflows

R4,200 (Cash Sales) + R0 (Other Income) = R4,200

3. Total Cash Available: R7,700

• This is the total amount of cash the business had available before paying any expenses.
• Calculation:

Opening Balance + Total Cash Inflows = 3,500 + 4,200 = R7,700

• A positive balance at this stage means the business has funds available for its expenses.

4. Cash Outflows (Money Going Out)

Cash outflows refer to the money the business spent during January.

a) Monthly Expenses – R3,820

• These are regular operating costs such as rent, salaries, utilities, and other day-to-day expenses.

b) Cash Purchases – R3,000

• This represents the cost of goods or materials bought during the month and paid for in cash (not on credit).

c) Vehicle Deposit – R7,000

• A large one-time payment was made as a deposit for a delivery vehicle.
• This significantly impacted the business’s cash balance for January.

Total Cash Payments

R3,820 (Monthly Expenses) + R3,000 (Purchases) + R7,000 (Vehicle Deposit) = R13,820

5. Closing Balance: R-6,120

• This is the final cash balance at the end of January, after all payments have been made.
• Calculation:

Total Cash Available - Total Cash Payments = 7,700 - 13,820 = -6,120

• A negative closing balance of R-6,120 means the business spent more than it earned, leading to a cash shortage.
• The business might need to cover this deficit by borrowing money or delaying some payments.

Conclusion

• In January, the business had a strong start with R3,500 in the bank and R4,200 from cash sales.
• However, high expenses (especially the R7,000 vehicle deposit) resulted in a negative cash flow of R-6,120.
• The business will need to manage its cash flow carefully in the coming months to recover from this shortfall.

February Cash Flow

Detailed Notes: February Cash Flow Statement

This cash flow statement explains the movement of money in and out of the business during February.

1. Opening Balance (from January): (R6,120)

• Meaning: This is the cash position carried forward from January.
• Key Point: The negative sign indicates the business started February with a deficit of R6,120 (it owed money or had more liabilities than cash).
• Why It Matters: Starting in the red makes it harder to cover February’s expenses.

2. Cash Inflows (Money Coming In)

These are the sources of cash received during February.

a) Cash Sales: R2,800

• Calculation:

70% of February’s total sales (R4,000 × 0.70) = R2,800

• Key Point: Only 70% of sales were paid in cash; the remaining 30% are credit sales (to be received later).
• Issue: February’s sales (R4,000) are lower than January’s (R6,000), reducing cash inflow.

b) Credit Sales Received: R1,800

• Source: This is money collected from January’s credit sales (30% of January’s R6,000 total sales).
• Key Point: Credit sales take one month to be received, causing a delay in cash flow.
• Why It Matters: Businesses selling on credit often face cash flow gaps because revenue is delayed.

c) Other Income: R0

• Meaning: No additional income was received (e.g., rent, interest, or side earnings).

Total Cash Inflows

R2,800 (Cash Sales) + R1,800 (Credit Sales Collected) = R4,600

3. Total Cash Available: (R1,520)

• Calculation:

Opening Balance + Total Cash Inflows = (-6,120) + 4,600 = -1,520

• Key Point: The business is still in deficit after receiving February’s cash inflows.
• Why It Matters: Even with R4,600 coming in, the business still doesn’t have enough to recover from the negative balance.

4. Cash Outflows (Money Going Out)

These are the business’s expenses and payments made during February.

a) Monthly Expenses: R3,820

• Includes: Rent, salaries, utilities, and other fixed costs.
• Observation: Consistent with January’s expenses (R3,820), showing stable overhead costs.

b) Cash Purchases: R2,000

• Meaning: Inventory or supplies bought with cash (not on credit).
• Issue: Making high purchases while in deficit worsens cash flow problems.

c) Vehicle Installment: R800

• Meaning: A recurring loan payment for a previously purchased vehicle.
• Key Point: This is a fixed liability that must be paid every month.

Total Cash Payments

R3,820 (Expenses) + R2,000 (Purchases) + R800 (Vehicle Installment) = R6,620

5. Closing Balance: (R8,140)

• Calculation:

Total Cash Available - Total Cash Payments = (-1,520) - 6,620 = -8,140

• Key Point: The deficit increased by R2,020 from January (-R6,120 → -R8,140).
• Why It Matters: The business is falling deeper into negative cash flow each month.

Conclusion

• In February, the business continued to struggle with a cash shortage.
• Despite earning R4,600, it wasn’t enough to cover the expenses, pushing the business deeper into debt (now R-8,140).
• The company must either reduce expenses, increase sales, or secure additional funding to avoid further financial difficulties.

MARCH CASHFLOW

Detailed Notes: March Cash Flow Statement

This statement analyzes how money moved in and out of the business during March.

1. Opening Balance (from February): (R8,140)

• Meaning: The business starts March with a R8,140 deficit, which is worse than February’s opening balance of R6,120.
• Key Point: The growing negative balance indicates ongoing cash flow problems.
• Why It Matters: The business is accumulating debt month after month, which could lead to financial instability.

2. Cash Inflows (Money Coming In)

These are the sources of cash received during March.

a) Cash Sales: R3,150

• Calculation:

70% of March’s total sales (R4,500 × 0.70) = R3,150

• Key Point: Sales improved slightly from February (R4,000 → R4,500), but cash inflow is still low.
• Issue: The business relies heavily on cash sales (70%) but struggles to cover costs.

b) Credit Sales Received: R1,200

• Source: Money collected from February’s credit sales (30% of February’s R4,000 sales).
• Key Point: Credit sales are lower because February’s total sales dropped (R4,000 vs. January’s R6,000).
• Why It Matters: The business is not collecting enough from past credit sales to offset current expenses.

c) Other Income (Sale of Old Van): R2,000

• Meaning: The business sold an old van for extra cash (a one-time income boost).
• Key Point: This is not recurring income—it cannot be relied upon every month.

Total Cash Inflows

R3,150 (Cash Sales) + R1,200 (Credit Sales) + R2,000 (Van Sale) = R6,350

3. Total Cash Available: (R1,790)

• Calculation:

Opening Balance + Total Cash Inflows = (-8,140) + 6,350 = -1,790

• Key Point: Even with R6,350 in inflows, the business remains R1,790 in the red before paying March’s bills.
• Why It Matters: The van sale helped temporarily, but the core business isn’t generating enough cash.

4. Cash Outflows (Money Going Out)

These are the business’s expenses and payments made during March.

a) Monthly Expenses: R3,820

• Includes: Rent, salaries, utilities, and other fixed costs.
• Observation: The same as in previous months—no cost-cutting measures have been implemented yet.

b) Cash Purchases: R3,000

• Meaning: Inventory or supplies bought with cash.
• Issue: High purchases while in deficit worsen the business’s cash flow.

c) Vehicle Installment: R800

• Meaning: Recurring loan payment (likely for a vehicle).
• Key Point: A fixed obligation that further strains cash flow.

d) Computer Deposit: R1,000

• Meaning: Likely a new purchase or upgrade (a one-time cost).
• Issue: Adding new expenses during a cash crisis is risky.

Total Cash Payments

R3,820 (Expenses) + R3,000 (Purchases) + R800 (Vehicle) + R1,000 (Computer) = R8,620

5. Closing Balance: (R10,410)

• Calculation:

Total Cash Available - Total Cash Payments = (-1,790) - 8,620 = -10,410

• Key Point: The deficit grew by R2,270 from February (-R8,140 → -R10,410).
• Why It Matters: The business is trapped in a downward spiral—expenses consistently exceed income.

April Cash Flow

Detailed Notes: April Cash Flow Statement

This cash flow statement tracks how money moved in and out of the business during April.

1. Opening Balance (from March): (R10,410)

• Meaning: The business starts April with a R10,410 deficit, continuing the trend from previous months.
• Key Point: The negative balance means the business is operating at a loss.
• Why It Matters: A growing deficit can lead to financial instability and difficulty in covering expenses.

2. Cash Inflows (Money Coming In)

These are the sources of cash received during April.

a) Cash Sales: R3,850

• Calculation:

70% of April’s total sales (R5,500 × 0.70) = R3,850

• Key Point: Sales improved slightly compared to March (R4,500 → R5,500), bringing in more cash.
• Issue: While sales increased, cash flow remains negative due to high expenses.

b) Credit Sales Received: R1,350

• Source: Money collected from March’s credit sales (30% of March’s R4,500 sales).
• Key Point: This is delayed income, reflecting the business’s credit sales model.
• Why It Matters: The business needs to manage its credit sales carefully to maintain positive cash flow.

c) Other Income: R0

• Meaning: No additional income (e.g., rent, interest, or side earnings) was received.
• Key Point: The business had no one-time income boosts like March’s van sale.

Total Cash Inflows

R3,850 (Cash Sales) + R1,350 (Credit Sales) + R0 (Other Income) = R5,210

3. Total Cash Available: (R5,210)

• Calculation:

Opening Balance + Total Cash Inflows = (-10,410) + 5,210 = -5,210

• Key Point: Even with R5,210 in cash inflows, the business is still in a deficit.
• Why It Matters: The business is struggling to generate enough income to cover its previous debts.

4. Cash Outflows (Money Going Out)

These are the business’s expenses and payments made during April.

a) Monthly Expenses: R3,820

• Includes: Rent, salaries, utilities, and other fixed costs.
• Observation: The same as previous months, indicating stable overhead expenses.

b) Cash Purchases: R4,000

• Meaning: Inventory or supplies bought with cash.
• Issue: High purchases while still in deficit further strain cash flow.

c) Other Payments – Vehicle Installment: R800

• Meaning: Recurring loan payment (likely for a vehicle).
• Key Point: A fixed obligation that must be paid monthly.

d) Other Payments – Computer Installment: R500

• Meaning: A partial payment for a computer, likely from the March purchase.
• Issue: Additional expenses put more pressure on limited cash.

Total Cash Payments

R3,820 (Expenses) + R4,000 (Purchases) + R800 (Vehicle) + R500 (Computer) = R9,120

5. Closing Balance: (R14,330)

• Calculation:

Total Cash Available - Total Cash Payments = (-5,210) - 9,120 = -14,330

• Key Point: The deficit grew by R3,920 from March (-R10,410 → -R14,330).
• Why It Matters: The business is experiencing increasing cash flow problems, indicating urgent need for cost-cutting or revenue-boosting strategies.

Conclusion

• In April, the business continued to struggle financially.
• Even though cash inflows increased slightly (R5,210), total payments (R9,120) worsened the deficit.
• The business now has a **negative balance of R14,330**, showing a need for immediate corrective action.
• Strategies to improve cash flow could include cutting expenses, increasing sales, or securing additional funding.

JANUARY TO FEBRUARY CASHFLOW STATEMENT

EBM N4 | Essential Revision Guide 1