Objectives

Make a practical way for cash-flow forecast for a hotel.

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The hotel CUELLA-RO S.A. manages 30 rooms in the northern mountains of Costa Rica. Presently there is a staff of seven people and the business has decided, in order to vary costs, to out-source the services of restoration, catering, laundry, decorations, accessories, and quality control.

On December 31st, 2009, the business is in the situation reflected in the following table.

For the first two months of the next fiscal year it is expected that:

During each week from Monday to Thursday three rooms will be rented (the price of a room is 10 um).

On weekends, which includes Friday night to Sunday, the occupancy rate will be 25 rooms (the price of a room is 15 um/night).

The bank financing is a loan that must still be paid in four years, in equal installments of 10 um/month within the first five days of every month.

All goods existing in storage will be sold with a profit margin of 200% and the same amount will be bought (half each month).

The debt with creditors is equal to advertising costs owed, which will be paid in January. Advertising is bought at the beginning of the year and is paid on the first day of January, May and September.

Payroll costs are 800 um monthly.

The cost of daily washing is 2% of sales, and the business has agreed to pay it at the end of every month.

Room cleaning services are 5% of sales and are paid at the close of every fiscal year.

Decoration expenses are 0.1% of the price of the room and a fixed expense of 60 um monthly.

Consultancy expenses for the issuance of receipts are 0.1% of the sum total of the business, and are paid every two months.

The owner usually withdraws 50 um from reserves every month for personal expenses and to promote the hotel.

The business pays a commission every month to a travel agency to recommend the hotel, which costs 2% of all sales done by the agency. In January and February, 10 weekend clients are expected to come through the agency.

The hotel expects to have to repair the façade and it is considered as a facility improvement since the life of the façade is increased by the type of material and paint to be used. The estimates that have been offered mean paying 2000 um. The work begins in January; 20% of the estimate is paid up front, and the rest is paid in six months.

The student is asked to:

Prepare estimates of cash, income and expenses, and hotel investments for these first two months of fiscal year 2010.

Decide how to finance or invest cash-flow excesses.

On March 1st it is known that the operations that have been performed are the following:

1. During each week, four rooms have been rented to commercial agents in the area that come for work. These agents all come through the travel agency.

2. Weekend occupancy has dropped by 40% due to work on the façade, which has caused many tourists to select another hotel with views of the volcano.

3. The inventory of goods was all sold in February with a profit margin of 50%.

4. The cost of fixing the façade doubled when the situation was evaluated and the payment conditions were kept.

5. On the first of January, the business renegotiated with the bank to double the number of years it would have to pay back the loan, which implies a new monthly fee of 5.5 um.

6. The building will be redeemed in 20 years using the linear system.

The student is asked to:

Reflect the accounts of the business, its daily ledger, its balance at the close of February, its income statement and its cash-flow.

Analyze budget deviations and explain their implications.