Cash Budget Limitations, Analysis, and Improvement Suggestions

This report analyzes the limitations and weaknesses of cash budgets, highlighting issues such as the potential for misinterpreting cash inflows as profits, the reliance on estimates, and the emphasis on cost-cutting over other factors. The report critiques a basic cash flow budget model and proposes an improved model that incorporates detailed revenue streams, variable expenses, and available cash, providing a more comprehensive view of financial performance. The analysis reveals the need for cost savings, particularly in areas like welcome kits, and identifies critical issues such as the lack of occupancy in July. The report suggests modifications to address these issues, including attracting families by creating a kids' zone, partnering with transportation agencies to provide cab services, and implementing a customer feedback system to improve services and hospitality. The report concludes with recommendations aimed at improving the financial health and operational effectiveness of the business.

BDM PROJECT
2020

Identification of limitations and weaknesses of the cash budget
Some of the limitations and weaknesses of cash budget manager asked are as follows:
 It is not always a reflection of profit: Inside the money spending plan, it is anything but
difficult to botch money inflows as benefits. That isn't generally the situation. Swelling may
happen because of installment of security store. An income is shaped alongside the offer of
capital resources. Once exercises and non-manageable occasions additionally create income.
 It relies on estimates to meet future needs: When utilizing a money spending plan,
inflows and outpourings from the earlier year are utilized to apportion money for the detail
in the next year. This implies every yearly spending plan is a gauge dependent on past
outcomes. There is no assurance that the income will be the equivalent from year to year for
any spending limit.
 It focuses more on cost to be main factor in decision making: Clarify that an item costs $
2.50 and you want to get it at this store over the city since client care is better. You can get it
at a close by store for $ 2, yet the administration there is awful. Utilizing a money spending
plan, you are compelled to go with the last since that is the place you set aside cash. Cost
turns into an essential factor in each dynamic.
Explanation of why this model is better than the one manager requested
Manager simply asked to carry contribution margin of each month to cash flow budget and
deduct fixed expenses from cash inflows. This only shows net profit; not related to any cash
budget. The reason behind this is avoidance of other factors like raw material, reflection of
variable expenses separately and available cash. The latest model of cash flow budget will show
joint income from two different packages that are R1 and R2; fixed assets have been reduced to
get final cash in hand left with Kresty and Mel. Additional to this, it will reflect balance left with
owner at the end of each month; which will support in tracking live status of hotel rooms and
know the occupancy rate.

Brief report
From the analysis of revised cost budget it was found that; cost savings need to be made in the
budget for about $2,552. Also expense like welcome kit should be minimized to get desired
profit for the year. On the basis of analysis of budgeted income statement and cash flow
statement some of the points need to be concerned:
July month sale: It was noticed that entire July; there was not a single room occupied; which
give lost to the business due to bearing fixed expenses in that month.
Modification in old policies: It was found that; some competitor hotels are earning even in low
season; the reason found was allowing kids and make separate kids zone for them. Additional to
this; they also arrange some activities for kids and parents both like games, pool party and many
more.
Tie up with transport agencies: Many couples find it difficult to arrange personal cab for
roaming around; it should also concern by management. The suggestion is to tie up with
transport agencies to boost income from commission from both side and also facilitate customers
with the same.
Feedback option: No feedback option was available with customer; which suffer the hotel with
loosing the opportunity for any development and improvement in the facility or hospitality.