Financial plan
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A cash budget is a term that is used in business and it generally refers to the cash receipts and disbursements of an organization over a period of time. The business inputs and outputs are all done on a cash budget. These basically are the cash inflows and outflows of a business. These broadly covers all revenues collected, expenses paid by the business, loans payments and receipts. Cash budgets have numerous benefits to the business. A cash budget gives an estimate of whether a business will be able to execute its operations over a period of time, they are also used to cut down on unnecessary expenses by the business, it helps businesses know the amount of credit it can comfortably loan out to customers without straining its resources and it also help determine when corrective actions are needed especially when the actual figures and the budget estimates do not match.
Despite the above advantages, there are certain pitfalls that are common among businesses when using cash budgets; it relies on estimates of the future revenues and expenses and this only means that the business may end up even incurring more because they lack the factual knowledge, it lacks flexibility which means it may not be able to deal with uncertainties, manipulation of the cash budget may occur in cases where a manager underestimates the expenses to win themselves praises and the last pitfall is that non-financial factors are not considered in a cash budget, for example, a bank offering good customer service (Brooks, 2015).
Revenue refers to the cash flows into the business over a period of time (Johnson, 2014). For the business to increase its revenue, it needs to increase its customer base, increase their transactions per day, increase the frequency with which they sell to a particular customer, raising the prices may also help although this has to be done with the highest level of expertise because it can easily work against the business. It may end up losing the customers it already has. The mechanisms will help the business grow its revenue base.
Business expenses refer to the payments made in the process of doing the business (Johnson, 2014). My business expenses are advertising fees, labor, training fees, office equipment and supplies, rent, insurance payments and packaging fees. Business revenue, on the other hand, refers to all the money received by the business over a period of time. Revenues also includes deductions for goods that are returned to the business and discounts offered on the same. Sources of business revenues are selling of goods and services, interest that the business receives from its investments, dividends received on shares, discounts from creditors and profits from sale of the business assets.
Income statement
Income statement for the year Ended December 31, 2017
Revenues
Sale of goods and services $30,000
Interest from investments 24,000
Dividends on shares 13,000
Discounts from creditors 10,000
Profits from assets 15,000
Total revenue $92,000
Expenses
Advertising fee $10,200
Labor 2,000
Training fees 750
Office equipment and supplies 500
Rent 900
Insurance payments 1300
Packaging fees 400
Total expenses $15, 850
Net income $76,150
Balance sheet as at
December 31, 2017
Assets
Current assets
Profits from assets $ 15,000
Sale of goods and services 30,000
Fixed assets
Interest from investments 24,000
Dividends on shares 13,000
Discounts from creditors 10,000
Total assets $92,000
Liabilities
Current liabilities
Cash $76,150
Advertising fee $10,200
Labor 2,000
Training fees 750
Office equipment and supplies 500
Rent 900
Insurance payments 1300
Packaging fees 400
Total $92,000
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash received from profits $15,000
Cash received from sales 30,000
Cash from dividends 13,000
Cash received from discounts 10,000
Cash paid for advertisements (10,200)
Cash paid to labor (2,000)
Cash paid for training (750)
Money paid for office equipment and supplies (500)
Money paid for rent (900)
Insurance payments (1300)
Packaging fee (400)
Cash at December 31, 2017 $76,500
A cash budget should be able to take care of future contingencies if more revenue and resource allocation is done for the future then by also not overlooking prices. I will have more revenue than expense allocation so that if things do not work as expected, at least I will not be on the dark side.
There are differences between a cash budget and an operating budget. The operating budget shows the current business assets while a cash budget does a prediction of whether a business will be able to comfortably run its operations in the future. Cash budget are the best to use because it deals with the future of the business, what it needs to succeed. An operating budget shows the current financial state of the business (Titman et al, 2017).
A business variance refers to the difference between the budgeted expenses and revenue and what was the actual amount. This will be helpful if the business wants to know whether the estimates really were true. It is favorable when the expenses are lower than the estimated and the revenue higher than the estimated. Budget variance is caused mainly by improper budgeting. Budget variance is done annually.
References
Brooks, R. (2015). Financial management: core concepts. Pearson.
Johnson, P.F. (2014). Purchasing and supply management. McGraw-Hill Higher Education.
Titman, S., Keown, A.J., & Martin, J.D. (2017). Financial management; Principles and
Applications. Pearson.
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