Good cash management is impossible without an analysis of the cash collections and cash disbursements of a company.

Good cash management is impossible without an analysis of the cash collections and cash disbursements of a company. Cash budgets provide a gauge for determining credit, disbursement, and discount policies. Cash budgets are effective control devices for monitoring cash and determining financing requirements.

Cash budgets are essential to all small businesses. In this assignment, you are required to do the following:

  • Develop a spreadsheet with a cash budget with lagging collections
  • Determine the net cash flows for the year
  • Forecast the cumulative dollar amount of the external financing required for the year

You are also required to prepare a 3-page analysis of the results of your cash budget.

Middletown Construction, Inc. has estimated the following sales forecast over the next 12 months (they close in the winter):

January$0February$0March$275,000April$275,000May$312,000June$417,000July$714,000August$611,000September$827,000October$500,000November$116,000December$0

The company also gathered the following collection estimates regarding the forecast sales:

  • Payment collection within the month of sale = 20%
  • Payment collection the month following sales = 60%
  • Payment collection the second month following sales = 20%

Payments for raw materials and labor costs are paid the month after the purchase and are estimated as follows:

March$220,000April$240,000May$225,000June$287,000July$350,000August$415,000September$242,000October$214,000November$222,000

Additional financial information is as follows:

  • Administrative salaries will approximately amount to $30,000 a month.
  • Lease payments are around $10,000 a month.
  • A one-time new plant investment for $23,000 is expected to incur and be paid in June.
  • Income tax payments estimated to be around $50,000 will be due in both June and September.
  • Miscellaneous costs are estimated to be around $5,000 a month.
  • Cash on hand on March 1 will be around $50,000, and a minimum cash balance of $50,000 shall be on hand at all times.

To receive full credit on this assignment, please show all work, including formulas and calculations used to arrive at the financial values.

 

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