Raising Entrepreneurial Capital

January February March April

Sales $50,000 $50,000 $40,000 $60,000

Wages 3,000 4,000

Rent 1,000 1,000

Other 400 600

Taxes 8,000

Experience shows that 20% of customers pay in the month of sale, 70% pay

1 month later, and the rest of paying customers pay 2 months after sale. 3%

of customers never pay. Inventory is purchased 1 month prior to sale, and

cost of goods sold equals 70% of sales . Accounts payable are paid 30 days

after purchase. Any financing is done through a 12% line of credit. The

company has $5,000 cash on hand March 1 and would like to retain a cash

balance of $5,000.

CASE 10.1 NEW TECH: MONTHLY CASH BUDGET

C

ASH BUDGET

Using a spreadsheet, prepare a cash budget for New Tech for the next

year (January through Decem ber) based on the following information.

October November December

Sales revenue (previous year) 325.0 325.0 325.0

Purchases 59.2

PAYMENT SCHEDULE

Cash sales ¼ 10% 10%

30-day payment ¼ 70% 70%

60-day payment ¼ 20% 20%

PURCHASE SCHEDULE

Paid in first month ¼ 40% 40%

Paid during second 60 days ¼ 60% 60%

Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.

Sales revenue 325 300 275 325 350 375 400 375 350 300 275 250

Purchases 59.0 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2 59.2

DISBURSEMENTS

Freight in 4.2 4.0 5.1 5.4 7.3 6.5 6.7 6.6 6.1 7.0 5.8 5.7

Labor 40.0 39.0 38.0 42.0 38.4 44.3 42.5 41.0 38.0 39.0 39.5 38.0

328 Internal Financial Management