Entrepreneurship Development Case Study

You Be the Consultant: In search of a Cash Flow Forecast

Prepared By

MD. ZABER TAUHID ABIR Faculty of Business Administration American International University-Bangladesh

MD. ZABER TAUHID ABIR 0|Page

Answer To the Question No 01: Assuming SBDC Consultant the following Cash Budget is prepared for MartinezCash Budget Most Likely Sales Forecast (For Six Months)
Particulars Cash Receipts: Sales Credit Sales (71%) 18,750 13,313 19,200 13,623 17,840 12,666 17,500 12,425 16,500 11,715 13,000 9,230 12,500 8,875 13,800 9,798 17,500 12,425 July August September October November December January February March

Collections: 68% in the same month 19% in the first month 7% in the second month Cash Sales (29%) Total Cash receipt 8,449 2,407 954 5,075 16,885 7,966 2,361 887 4,785 15,999 6,276 2,226 870 3,770 13,142 6,035 1,754 820 3,625 12,234 6,663 1,686 646 4,002 12,997 8,449 1,862 621 5,075 16,007

Cash Disbursement: Cost of Inventory (63%) Wages and Salaries Tax Payment Due Utilities Expenses Rent MD. ZABER TAUHID ABIR 11,239 2,050 0 800 1,200 11,025 1,825 0 800 1,200 10,395 1,725 1,400 800 1,200 8,190 1,725 0 800 1,200 7,875 1,950 0 800 1,200 8,694 2,425 0 800 1,200 1|Page

Truck Loan Insurance Premiums Office Supplies Maintenance Computer Supplies Advertising Legal and Accounting fees Miscellaneous Expenses Total Cash Disbursements

317 0 95 75 75 550 250 60 16,711

317 0 95 75 75 550 250 60 16,272

317 0 95 75 75 550 250 60 16,942

317 0 95 75 75 550 250 60 13,337

317 1,200 95 75 75 550 250 60 14,447

317 0 95 75 75 550 250 60 14,541

End-of-Month Balance
Particulars Beginning Cash Balance Add: Cash Receipt July August September October 8,750 16,885 25,635 Less: Cash Disbursement Cash Surplus 16,711 8,924 November 8,924 15,999 24,923 16,272 8,651 December 8,651 13,142 21,793 16,942 4,851 January 4,851 12,234 17,085 13,337 3,748 February 3,748 12,997 16,745 14,447 2,298 March 2,298 16,007 18,305 14,541 3,764

** Minimum Cash Balance or Safety Stock is 2,000; which is maintained throughout the periodic chart.

MD. ZABER TAUHID ABIR

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Answer To the Question No 02: A company needs to produce a cash budget in order to ensure that there is enough cash within the business to achieve the operational levels set by the functional budgets. Its an estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities. In Martinez Cash Budget, they had $2,000 of Minimum Cash Balance or Safety Stock. The have successfully maintained the desired cash flow, but as a consultant, I see, month buy month they are losing their surplus cash. In October, they had $8,924 Cash Surplus, which is far more than their minimum expected balance. But time to time their surplus is losing which is not a good sign for the internal as well as liquidity. In few months they might have a liquidity crisis for below expected cash balance or cash deficit.

Answer To the Question No 03: As a Consultant, I can make few points to improve the cash flow of Martinez Not selling anymore products to the bad-debt producing customers. Credit history should be judged before credit sales. Review Expense Account, whether they are costing more than required. Invoice promptly to collect money early. Offer Trade Discounts (5%-7%) to encourage customers to pay debts. Follow up on Default Payments. Deposit Payments Promptly. Manage Inventory Efficiently. Take fair time as possible to pay, but not cracking the goodwill of the organization. I hope by following these instructions, Martinez can improve their Cash Flow.

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