NovaTech Repairs is a small electronics repair business in Manila, Philippines, run by two business partners. The business repairs laptops and smartphones f...

(a) Definition of cash-flow forecast [2]

A cash-flow forecast is a prediction or estimate of the future cash inflows and outflows of a business over a given period [1], usually showing the resulting opening and closing cash balances for each month [1].

(b) Why cash is described as 'the lifeblood of a business' [4]

• Cash is described as the "lifeblood" because a business needs a continuous flow of cash to survive on a day-to-day basis, just as a body needs blood to function [1].
• Without enough cash, NovaTech Repairs would be unable to pay its technicians' wages, buy replacement parts such as screens and batteries, or pay rent on its workshop, even if the business is recording profits on paper [2 marks for applied explanation].
• A shortage of cash, unlike a shortage of profit, can cause a business to fail immediately, since suppliers and staff must be paid in cash, not in future profit [1].

(c) Two causes of cash-flow problems NovaTech Repairs might experience [6]

1. Late payment by customers [up to 3 marks] - Customers who pay by instalment or on credit for expensive repairs (such as a laptop motherboard replacement) may pay late, leaving NovaTech short of cash despite having agreed the sale. As a small, young business with only 8 months of trading, NovaTech may lack the financial reserves to absorb delays in receiving payment [1][1][1].
2. Over-investment in replacement parts [up to 3 marks] - Buying a large batch of screens, batteries, and components in advance ties up cash that could otherwise be used to pay immediate expenses such as wages and rent. If some parts turn out to be for models that customers do not bring in for repair, the cash remains locked in unsold inventory [1][1][1].

Other valid causes: unexpected costs such as equipment breakdown; seasonal fluctuations in demand for repairs.

(d) Two solutions to improve NovaTech's cash-flow position [8]

1. Require upfront payment or deposits [up to 4 marks] - Requiring customers to pay a deposit when leaving a device for repair, or full payment on collection rather than offering credit, would speed up cash inflows and reduce the risk of bad debts. This directly addresses the timing gap between completing work and receiving payment. However, this policy could deter some customers who expect flexible payment terms, particularly for expensive repairs, and may push them toward competitors who do offer credit [1][1][1][1].
2. Negotiate trade credit with parts suppliers [up to 4 marks] - Agreeing 30-day payment terms with suppliers would delay cash outflows for parts and better match them with when repair jobs are completed and paid for by customers. This improves the timing of cash movements without needing external borrowing. However, suppliers may charge higher prices for credit terms, or they may refuse credit to a small, relatively new business with only 8 months of trading history and no proven payment record [1][1][1][1].

Requiring deposits is probably the more practical first step for NovaTech, as it is entirely within the business's control and requires no negotiation with external parties. Trade credit is a valuable longer-term goal once the business has established a track record with suppliers [1].