Genesis Cash Budget Report

The Genesis operations management team is now preparing to implement the operating expansion plan. Previously the firm's cash position did not pose a challenge. However, the planned foreign expansion requires Genesis to have a reliable source of funds for both short-term and long-term needs.

One of Genesis's potential lenders tells the team that in order to be considered as a viable customer, Genesis must prepare and submit a monthly cash budget for the current year and a quarterly budget for the subsequent year. The lender will review the cash budget and determine whether or not Genesis can meet the loan repayment terms. Genesis's ability to repay the loan depends not only on sales and expenses but also on how quickly the company can collect payment from customers and how well it manages its supplier terms and other operating expenses. The Genesis team members agreed that being fully prepared with factual data would allow them to maximize their position as well as negotiate favorable financing terms.

The Genesis management team held a brainstorming session to chart a plan of action, which is detailed here.

• Evaluate historical data and prepare assumptions that will drive the planning process.
• Produce a detailed cash budget that summarizes cash inflow, outflow, and financing needs.
• Identify and compare interest rates, both short-term and long-term, using debt and equity.
• Analyze the financing mix (short/long) and the cost associated with the recommendation.

Since this expansion is critical to Genesis Corporation expanding into new overseas markets, the operations management team has been asked to prepare an executive summary with supporting details for Genesis's senior executives.

Working over a weekend, the management team developed realistic assumptions to construct a working capital budget.

1. Sales: The marketing expert and the newly created customer service personnel developed sales projections based on historical data and forecast research.

2. Other cash receipt: Rental income $15,000 per month.

3. Production material: The production manager forecasted material cost based on cost quotes from reliable vendors, the average of which is 50 percent of sales.

4. Other production cost: Based on historical cost data, this cost on an average is 30 percent of the material cost and occurs in the month after material purchase.

5. Selling and marketing expense: Five percent of sales

6. General and administrative expense: Twenty percent of sales

7. Interest payments: Payable in December - $75, 000

8. Tax payments: Quarterly due 15th of April, July, October, and January - $15,000

9. Minimum cash balance desired: - $ 25,000 per month

10.  Cash balance start of month (December):$15,000

11.  Available short-term annual interest rate is 8 percent, long-term debt rate is 9 percent, and long-term equity is 10 percent. All funds would be available the first month when the firm encounters a deficit.

12.  Dividend payment: None

Based on this information, do the following:

• Using the Cash Budget spreadsheet, calculate a detailed company cash budget for the forthcoming year. Summarize the sources and uses of cash, and identify the external financing needs for the forthcoming two year