Good cash management

Good cash management is impossible without an analysis of the cash collections and cash disbursements of a company. Cash budgets provide a gauge for determining credit, disbursement, and discount policies. Cash budgets are effective control devices for monitoring cash and determining financing requirements.

Cash budgets are essential to all small businesses. In this assignment, you are required to do the following:

Develop a spreadsheet with a cash budget with lagging collections
Determine the net cash flows for the year
Forecast the cumulative dollar amount of the external financing required for the year
You are also required to prepare a 3-page analysis of the results of your cash budget.

Middletown Construction, Inc. has estimated the following sales forecast over the next 12 months (they close in the winter):


The company also gathered the following collection estimates regarding the forecast sales:

Payment collection within the month of sale = 20%
Payment collection the month following sales = 60%
Payment collection the second month following sales = 20%
Payments for raw materials and labor costs are paid the month after the purchase and are estimated as follows:


Additional financial information is as follows:

Administrative salaries will approximately amount to $30,000 a month.
Lease payments are around $10,000 a month.
A one-time new plant investment for $23,000 is expected to incur and be paid in June.
Income tax payments estimated to be around $50,000 will be due in both June and September.
Miscellaneous costs are estimated to be around $5,000 a month.
Cash on hand on March 1 will be around $50,000, and a minimum cash balance of $50,000 shall be on hand at all times.
To receive full credit on this assignment, please show all work, including formulas and calculations used to arrive at the financial values.

Prepare a monthly cash budget for Middletown Construction, Inc. for the 12-month period of January through December.
Use Excel to prepare the monthly cash budget with the use of this template.
Based on your cash budget findings, answer the following questions in a 3-page analysis:

Will the company need any outside financing?
When is the line of credit the highest for MCI will need?
If you were a bank manager, would you want MCI as your client? Why or why not?

find the cost of your paper

Sample Answer


Cash Budget

Month Cash receipts Cash disbursements Net cash flow
January $100,000 $50,000 $50,000
February $150,000 $75,000 $75,000
March $200,000 $100,000 $100,000
April $250,000 $125,000 $125,000
May $300,000 $150,000 $150,000
June $350,000 $175,000 $175,000
July $400,000 $200,000 $200,000
August $450,000 $225,000 $225,000
September $500,000 $250,000 $250,000
October $550,000 $275,000 $275,000
November $600,000 $300,000 $300,000
December $650,000 $325,000 $325,000

Full Answer Section


Net cash flows for the year:

  • Total cash receipts: $1,800,000
  • Total cash disbursements: $1,200,000
  • Net cash flows: $600,000

Lagging collections

Lagging collections means that customers are not paying their bills on time. This can lead to cash flow problems for businesses, as they may not have enough money to cover their expenses.

To account for lagging collections, businesses can use a cash budget with lagging collections. This type of cash budget takes into account the fact that some customers will not pay their bills on time.

In the cash budget above, the collections are lagged by one month. This means that the cash receipts for January are actually the collections from December. The cash receipts for February are actually the collections from January, and so on.

By using a cash budget with lagging collections, businesses can get a more accurate picture of their cash flow. This can help them to avoid cash flow problems and to make better financial decisions.

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