CASE STUDY 3 - Cash Budget Template

SCHEDULE OF EXPECTED CASH COLLECTIONS FROM CUSTOMERS: Credit Sales July August September Total Cash Collections

August 75,000 75,000

SCHEDULE FOR EXPECTED PAYMENTS FOR PURCHASE OF INVENTORY Inventory purchases July August September Total Payments for Inventory Purchases

August 45,000 45,000

Oxford Company Cash Budget For the Two Months of August and September Cash balance Add: Receipts Collections from customers Sale of plant assets Sale of new common stock Cash sales Total receipts Total Available Cash Less: Disbursements Purchases of inventory Operating expenses Selling and administrative expenses Dividends Equipment purchase Total disbursements Excess (deficiency of available cash over disbursements) Financing Borrowings Repayments Ending cash balance Please answer the 3 qualitative questions on the next tab called Qualitative Questions. August $10,000 75,000 12,350 16,850 104,200 114,200 45,000 6,750 12,500 19,000 83,250 30,950

0 $30,950

September

57,000 57,000

September

21,000 21,000

September $10,000 57,000

57,000 67,000 21,000 6,750 12,500 6,000 46,250 20,750

0 20,750

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What are the three sections of a Cash Budget, and what is included in each section? I found four: section, which is the beginning cash balance, cash collections from customers, and other 1. Receipts receipts 2. Disbursement section, comprised of all cash payments made by purpose 3. Cash surplus or deficit section, showing the difference between cash receipts and cash payments 4. Financing section, providing a detailed account of the borrowings and repayments expected during the period

Why cashCash Budget so vitalplanning and control. It presents expected cash inflow and outflow for a The is a budget is for cash to a company? designated time period. The cash budget helps management keep cash balances in reasonable relationship to its needs and aids in avoiding idle cash and possible cash shortages. What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash? 1. Revenue/Expense Budget: Develop a budget that time phases your cash, expense needs. This may need to be down to the day and not just bucketed by month. This then helps you determine how much revenue you need to sell and then collect payment on in time to make payments. Review your budget with other business professionals to get their feedback as to its believability. Their initial comments may hurt but your still working on paper and not spending money. Stress your plan for corner conditions and understand how your budget may or may not respond under those conditions. 2. Collection of Receivables: The critical element in managing cash is to understand what collection obstacles may occur that would delay the arrival of cash to pay for necessary expenses. 3. Importance of No: Too often we are hungry for business or excited about a new client and make allowances, become too aggressive in pricing or scheduling a project, or committing to a poorly defined project. The end result is that you devalue the value that you offer the customer. What you rationalize as a good concession at the time to get the order makes it a costly product to deliver. Because of the over commitment you consume opportunity and delivery time on a low margin piece of business that may end up becoming a collection problem when other business was available that 4. Negotiate Expenses: A number one priority is to minimize your expenses by effective purchasing. When you need something in your business remember that there are all kinds of ways of purchasing it at different prices. Online auction sites can be very effective in reducing the cost of a business item by over half the local street price. Used equipment is also a great way to conserve cash. That approach may be a problem for you or a few of your employees using something that is refurbished or shows signs of wear but still has a useful life left but it protectsyou to a point where you are through. 5. Cash Flow Dashboard: Doing all of the above does not get cash. Tough negotiating on recurring Managing cash flow is a daily discipline. How severe your cash flow situation is determines the intensity in which you monitor key performance indicators. If you are in good shape then it may be as simple as monitoring incoming orders, shipments and deposits. If you are on a roller coaster then you may need to include watching each receivable, bank balance, when you pay payroll, what your payable situation is. Keep a dashboard active so that you can always dial it up or down when you