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Monthly Cash Budget

The Genesis operations management team is now preparing to
implement the operating expansion plan. Previously the firm’s cash position did
not pose a challenge. However, the planned foreign expansion requires Genesis
to have a reliable source of funds for both short-term and long-term needs.
One of Genesis’s potential lenders tells the team that in order to
be considered as a viable customer, Genesis must prepare and submit a monthly
cash budget for the current year and a quarterly budget for the subsequent
year. The lender will review the cash budget and determine whether or not
Genesis can meet the loan repayment terms. Genesis’s ability to repay the loan
depends not only on sales and expenses but also on how quickly the company can
collect payment from customers and how well it manages its supplier terms and
other operating expenses. The Genesis team members agreed that being fully
prepared with factual data would allow them to maximize their position as well
as negotiate favorable financing terms.
The Genesis management team held a brainstorming session to chart
a plan of action, which is detailed here.

Write a word essay – Evaluate
historical data and prepare assumptions that will drive the planning
process.
Produce
a detailed cash budget that summarizes cash inflow, outflow, and financing
needs.
Identify
and compare interest rates, both short-term and long-term, using debt and
equity.
Analyze
the financing mix (short/long) and the cost associated with the
recommendation.

Since this expansion is critical to Genesis Corporation expanding
into new overseas markets, the operations management team has been asked to
prepare an executive summary with supporting details for Genesis’s senior
executives.
Working over a weekend, the management team developed realistic
assumptions to construct a working capital budget.
1. Sales: The marketing expert and the newly created customer service
personnel developed sales projections based on historical data and forecast
research.
2. Other cash receipt: Rental income $15,000 per month.
3. Production material: The production manager forecasted material
cost based on cost quotes from reliable vendors, the average of which is 50
percent of sales.
4. Other production cost: Based on historical cost data, this cost on
an average is 30 percent of the material cost and occurs in the month after
material purchase.
5. Selling and marketing expense: Five percent of sales
6. General and administrative expense: Twenty percent of sales
7. Interest payments: Payable in December – $75, 000
8. Tax payments: Quarterly due 15th of April, July, October, and
January – $15,000
9. Minimum cash balance desired: – $ 25,000 per month
10. Cash balance start of month (December):$15,000
11. Available short-term annual interest rate is 8 percent, long-term
debt rate is 9 percent, and long-term equity is 10 percent. All funds would be
available the first month when the firm encounters a deficit.
12. Dividend payment: None
Based on this information, do the following:

Using
the Cash Budget spreadsheet, calculate a detailed company cash budget for
the forthcoming year. Summarize the sources and uses of cash, and identify
the external financing needs for the forthcoming two (2) years.

Cash Budget
 this
Excel spreadsheet to view the company’s cash budget. You will calculate the
company’s cash budget for the forthcoming year using this information.

In
an executive-level report, summarize the company’s financing needs for the
forecast period and provide your recommendations for financing the planned
activities. Be sure to comment on the following:

a) Your recommended financing solution and cost to the firm: If Genesis
needs operating cash, how should it fund this need? Are there internal
policy changes with regard to collections or payables management you would
recommend? What types of external financing are available?

b) Your concerns associated with the firm’s cash budget. Is this a
sign of weak sales performance or poor cost control? Why or why not?

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