Monthly Cash Budget Business Plan

Looking at the nine month budget for Cyrus Brown Manufacturing (CBM), for the first four months, the company will not be generating enough cash to cover its monthly expenses and maintain $50,000 cash on hand at all times. If the company is able to find a way to maintain the $50,000 cash on hand, after the first four months, CBM will be able to generate enough cash to cover monthly expenses as well as maintain $50,000 cash on hand. Therefore, CBM will need outside financing, but only for the first four months, after which the company will be okay.
CBM has the option of getting a line of credit from a bank in order to finance its operations and keep afloat. During the four months that CBM will need outside financing, the lowest amount that the company will need is $15,000, and the highest amount they will need is $241,500. CBM will therefore need a line of credit that will allow the company to borrow as much as $241,500.
The cash flow of a company is very essential. It is generally said that cash is king. A company’s ability to keep operating is heavily dependent on its cash flow, which makes cash flow a key indicator of financial health (Kokemuller, 2015). Without cash, a company would not be able to meet its obligations or invest in growth opportunities. It is therefore very essential for a company to maintain a healthy cash flow, and CBM is no exception. Maintaining cash flow is mainly done by ensuring that at any one point in the company, the inflow of cash is more than the out flow of cash.
On the other hand, it is important to note that CBM is a new company, and being a new company it is expected that during the first few months of operating, the company is not able to generate enough sales to cover the monthly expenses, and would therefore need outside financing. For this reason, CBM’s cash position is not alarming. During the budget season, CBM is able to start having positive cash flows in the fifth month of being in operation. However, this is assuming that CBM is able to find a way of maintaining the $50,000 cash on hand. If CBM is not able to find a way to maintain the $50,000 cash on hand, it is not able to have a positive cash flow until the last two months. This could be alarming, but again keeping in mind that this is a new company, having a positive cash flow seven months into operating without any outside financing indicates a healthy growth of the company.
If I was a bank manager, I would not mind having CBM as a client. To begin with, as outlined above, CBM is able to make positive cash flows seven months into operations without having any outside financing. In addition, looking at the collection rate, CBM is able to collect 80% of the accounts receivables in two months. Managing accounts receivables is very key in obtaining a positive cash flow (Schaefer, 2011), and CBM is budgeting to do so. Also, looking at the rate sales increase and comparing this rate to the rate collected cash increases, for the most part the collected cash increase rate is higher than that of sales’ increase. This indicates a healthy position of the company. For these reasons, I perceive CBM to be a promising company, and if it is able to get outside financing, it would quicken the rate at which it is able to meet its obligations and still maintain a positive cash flow.

References

Kokemuller, N. (2015). Importance of Cash Flow to a Business. Chron. Retrieved from
http://smallbusiness.chron.com/importance-cash-flow-business-57376.html
Schaefer, B. (2011). Managing your cash position- 4 methods.
Sageworks.Retrieved from
https://www.sageworks.com/blog/post/2011/06/21/Managing-Your-Cash- Position-4-Methods.aspx