Week 4 CASH BUDGET

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  • Analyze
    the steps involved in preparing a cash budget and determine which steps
    presents the greatest number of obstacles to the greatest number of
    small businesses. Explain your rationale.

A
cash budget helps to ensure that you organization will have the
necessary financial backing it needs in order to function and be
successful throughout the budget period. Cash budgets can broken down
into months or quarters to reflect the cash flow.

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Steps in preparing a cash budget are to:

Determine the beginning cash balance. How much cash will be available at the beginning of the period?

Add Receipts. Determine the expected receipts or collections from customers that will flow into the cash account each period.

Deduct
Disbursements. Determine how much cash will be needed to cover
disbursements, cash payouts during the period. This could include
payment for materials, payroll, taxes due, etc.

Calculate
the cash excess or deficiency. Subtract the disbursement from the sum
of the beginning cash balance and the receipts expected during that
period.

Determine
financing needed. Subtract the disbursement from total cash
available. If there is cash excess, then financing of operations may be
covered by the available cash.

Establish
the ending cash balance. The ending cash balance becomes the beginning
cash balance for the next period. This includes the receipts and loans
less the disbursements and financing costs.

(2007 Harvard Business School Publishing).

According to the chapter readings, there are five cash management roles for the entrepreneur.

Cash finder. Make sure there is enough capital to pay all present and future bills.

Cash planner. Make sure your company’s cash is used properly and efficiently. Keep track of your cash.

Cash
distributor. This role requires you to control the cash needed to pay
the company’s bills and the priority and the timing of those payments.

Cash Collector. Your job is to make sure your customers pay their bills on time.

Cash conserver. This role requires you to make sure your company gets maximum value for the dollars it spends.

Source: Based on Bruce J. Blechman, “Quick Change Artist,” Entrepreneur, January 1994, pp. 18–21.

  • Analyze
    the steps involved in avoiding a cash crunch and make at least one
    additional recommendation for doing so. Provide specific examples to
    support your response.

Techniques for avoiding a cash crunch are:

Barter, the exchange of goods and services for other goods and services, is an effective way to conserve cash.

Avoid Nonessential Outlays. Smart entrepreneurs spend cash only when it is necessary.

Look
for Simple ways to cut cost. Allowing expenses to creep u p over time
is a common tendency in any business, but smart entrepreneurs are always
on the look out for ways to cut costs and to operate more
efficiently.

Negotiate
Fixed Loan Payments to Coincide with Your Company’s Cash Flow Cycle.
Many banks allow businesses to structure loans so that they can skip
specific payments when their cash flow ebbs to its lowest point.

Buy
Used or Reconditioned Equipment. Many shrewd entrepreneurs purchase
used or reconditioned equipment, especially if it is “behind the scenes”
machinery.

Hire
Part-Time Employees and Freelance Specialists Whenever Possible.
Hiring part-timers and freelancers rather than full time workers saves
on both the cost of salaries and employee benefits.

Outsource,
conserve valuable cash by outsourcing certain activities to businesses
that specialize in performing them rather than hiring someone to do
them in-house.

These
are just a few of the many ways to avoid a cash crunch when having a
business. Another suggestion is to make sure the you plan ahead for
slow business on off peak season.

19 mins ago


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