a justification for the small business loan must also be provided how much

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 Assignment: Forecast of cash flow for business

You would like to start a small business selling gourmet take-away coffee and an opportunity has presented to lease premises attached to a commercial office building in a busy part of Sydney. The premises opens onto the street and a considerable number of people walk past this venue daily on their way to or from work (foot traffic). The venue is very small – only 3m by 6m – but that makes the rental more affordable and it is sufficient to run a take-away coffee shop. There are no fixtures and fittings installed as it was used as a storage room. The owner has agreed that you are able to refit the premises to work as a coffee shop, at your own expense (there is electricity and water already fitted). You will need to restructure the front to provide a lockable front counter opening to the street – this will require some structural building work.

The capital you have available is $50,000 but ideally you would like to be as economical as possible with set-up costs. Further funding will be available by way of a bank loan

“Our vision is to change the way small business owners experience finance. We’ve helped more than 29,400 small businesses with funds to seize opportunities or to support cash flow. We continue to fund eligible small businesses with a range of options.”

However, the small business funding from Prospa requires you to show 6 months of actual trading cash flow. They do not lend to initial start-ups. Therefore, you 3 plan to start the business with your own capital and then, after 6 months, approach Prospa for a loan to expand the operation.

Before the project begins, as part of your business plan, you are required to prepare a detailed cash budget for the first 6 months (similar to the ‘Forever Tuna’ class example, but in more detail), that includes a capital expenditure budget, direct materials budget, direct labour budget and an overheads budget, rolled into a master cash budget. The cash flows must be shown weekly, not monthly.

At the 6-month point you plan to expand the business using the Prospa small business loan. The loan amount needs to be justifiable given the cash flows from the 6 months of operation (you need to show that your business can easily pay it back!). Details of the expansion need to be explained and a further 6 months of cash flow need to be forecast, ending in a cash budget for the 12 months (i.e., the first year of trading).

For the first 6 months you plan to only sell the following products:

 Two croissant options - almond and chocolate (delivered daily at 7am from a nearby bakery)

 Flat white or cappuccinos (normal or large sizing in takeaway cups)  Tea (English breakfast or Earl Grey)

 A special for a croissant and coffee or tea combo

 One other product of your choice (food or beverage)

This is a simple menu as you want to focus on being a gourmet coffee outlet, with a reputation for great coffee. After 6 months, if you wish, you may expand your product range – this depends on what you want to do in your expansion.

All pricing, timing and expenditure estimates and decisions must be justified in the cashflow worksheets.

A justification for the small business loan must also be provided. How much? What for? Is it a reasonable amount to cover the expansion? Can it be repaid according to Prospa’s terms?

It is also recommended that you hire at least one other person (other than yourself) to work in the shop. How many staff members can run the shop? What will your opening times be? It is also recommended that at least one person (whoever makes the coffee) is qualified as a barista – maybe that should be you too? (it is very important that your coffee gains a reputation for quality and consistency)  

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