BUDGETING FOR A NEW HOTEL

Budgeting for a new hotel

Budgeting for a new hotel

Task 1

Cash Budget

Cash budget refers to the expected cash inflows (receipts) and cash outflows (disbursement) of the business and financing needs of the business. It is notable that effective cash budget of the company identifies that when a business have excess cash and when business needs to borrow money. This allows business to develop effective plan to invest excess amount and when to borrow money to avoid cash out issues. It also helps company to avoid unnecessary borrowing of money and it reduces cost of debt of the company (Albrecht, 2010, pp. 903-904). Below is the project cash budget of Miranda's operation.

April

May

June

July

August

September

Days in Month

30

31

30

31

31

30

Rate per Day

£ 150.00 £ 150.00 £ 150.00 £ 150.00 £ 150.00 £ 150.00

Maximum revenue £ 4,500.00 £ 4,650.00 £ 4,500.00 £ 4,650.00 £ 4,650.00 £ 4,500.00

Expected Occupancy Level

20%

30%

50%

80%

90%

60%

Expected Sales

£ 900.00 £ 1,395.00 £ 2,250.00 £ 3,720.00 £ 4,185.00 £ 2,700.00

Cash Inflows

Cash Sales (30%)

£ 270.00 £ 418.50 £ 675.00 £ 1,116.00 £ 1,255.50 £ 810.00

Credit sales (70% within 2 months)

£ - £ - £ 630.00 £ 976.50 £ 1,575.00 £ 2,604.00

Total cash inflows

£ 270.00 £ 418.50 £ 1,305.00 £ 2,092.50 £ 2,830.50 £ 3,414.00

Cash Outflows

Purchases 20% of Sales

Cash Payment of purchases (20% Current Month)

£ 36.00 £ 55.80 £ 90.00 £ 148.80 £ 167.40 £ 108.00

Credit Payment of purchases (80% preceding Month)

£ - £ 144.00 £ 223.20 £ 360.00 £ 595.20 £ 669.60

Labour Cost 20% of sales

£ 180.00 £ 279.00 £ 450.00 £ 744.00 £ 837.00 £ 540.00

Overhead 25% of sales (paid in proceeding month)

£ - £ 225.00 £ 348.75 £ 562.50 £ 930.00 £ 1,046.25

Total cash outflows £ 216.00 £ 703.80 £ 1,111.95 £ 1,815.30 £ 2,529.60 £ 2,363.85

Net cash flows

£ 54.00

-£ 285.30 £ 193.05 £ 277.20 £ 300.90 £ 1,050.15

Add: opening cash balance

£ 125,000.00 £ 125,054.00 £ 124,768.70 £ 124,961.75 £ 125,238.95 £ 125,539.85

Ending Cash Balance

£ 125,054.00 £ 124,768.70 £ 124,961.75 £ 125,238.95 £ 125,539.85 £ 126,590.00

As in cash budgeting depreciation is not accounted as this expense does not involve any cash during that month. Therefore, cash budgeting is used for items where cash movement is occurred. Company will be in negative cash flows during month of May, otherwise company is generating positive cash flows. However, external finance is not required as there is cash in hand in beginning of £125,000. Therefore, the cash in hand can be used to counter this issue.

Budgeted income statement

Future income of the business is projected by budgeted income statement. Businesses projects income statement for specific period in future based on expected revenues and expenses expected during this period (Weygandt, 2009, pp. 400-401). Below is the budgeted income statement of the Miranda's operation.

April

May

June

July

August

September

Days in Month

30

31

30

31

31

30

Rate per Day

£ 150.00 £ 150.00 £ 150.00 £ 150.00 £ 150.00 £ 150.00

Maximum revenue £ ...