Financial Plan: Cash Budgeting and Financial Analysis (FIN/375)

This report presents a comprehensive financial plan tailored for a small business, addressing key aspects of financial management. It begins by exploring the potential benefits and drawbacks of a cash flow budget, emphasizing its role in maintaining cash balances and meeting obligations while also acknowledging the difference between cash balance and profit. The plan outlines expected business expenses, encompassing labor costs, variable expenses (materials, overheads), marketing, and fixed expenses (rent, etc.), alongside sources of revenue, primarily sales and potential borrowing. The report includes a detailed income statement, balance sheet, and cash flow statement, providing a clear view of the company's financial position. It also explains how to adjust the cash budget to manage unforeseen circumstances and market fluctuations. The difference between operating and cash budgets is highlighted, along with the importance of budget variance analysis for monitoring performance and controlling costs. The report concludes with recommendations for preparing cash budgets, incorporating contingencies, and improving profitability, supported by references to relevant financial management literature. The student assignment is available on Desklib for further study.

1
FIN/375: Financial Management in The
Small Business

2
Table of Contents
Potential benefits and pitfalls of cash flow budget....................................................................3
Expected business expenses and sources of revenue.................................................................3
Income statement, balance sheet and cash flow statement........................................................3
Adjusting cash budget to manage contingencies.......................................................................4
Difference between operating and cash budget.........................................................................5
Importance of budget variance analysis.....................................................................................5
Recommendations......................................................................................................................5
References..................................................................................................................................6

3
Potential benefits and pitfalls of cash flow budget
The cash budget is important as with this cash balance will be maintained and all the
obligations of the business will be met on time. The amount which is required to be borrowed
or is in excess is ascertained with the help of this. There is a difference in the cash balance
and profit and that is a disadvantage (DeFranco & Schmidgall, 2017). By this strategic
objectives will be attained as the cash will be retained to be used in an emergency. With the
help of this, the adjustment for the difficult times will be made which are involved in
planning. The revenue will be increased by 10% by including all the expenses and labour cost
which will be incurred in the making of budget.
Expected business expenses and sources of revenue
In the business, there will be various expenses that will be involved such as the labour
cost which will be incurred on a per hour basis. The variable expense will be involved in
which material and labour and other overheads will be considered. There will be a need for
the marketing of product and that will also be considered in cost. The fixed expenses will be
incorporated for rent and other charges which need to be considered in calculating the total
cost.
The funds will be available from various sources and in that main will be the sale
which will be made and the amount which will be collected is a fund for the business. The
shortage which will be faced will be met with the help of borrowing that will be taken from
online national bank.
Income statement, balance sheet and cash flow statement
Income statement
Particulars Amount
Sales $1,20,000
Purchases 1,12,500
Gross profit $7,500
Rent, insurance and others 3,000
Wages 12,000
Net profit ($7,500)

4
Balance sheet
Particulars Amount
Current assets:
Debtors 43500
Cash 9500
Total assets 53000
Current liabilities:
Net profit -7500
Provision for doubtful debt 9000
Creditors 45000
Loan 6500
Total liabilities 53000
Cash flow statement
Particulars Amount
Cash flow from operating activities
Cash collection 97,500
Cash payments -1,05,000
Net cash flow from operating
activities
-7,500
Cash flow from investing activities -
Cash flow from financing activities
Loan taken 6500
Net cash flow from all activities -1,000
Cash opening balance 6000
Closing balance 5,000
Adjusting the cash budget to manage contingencies
The cash budget will be adjusted for the contingencies by incorporating the expenses
in relation to the coming emergency. All the elements which will be required in such
situations will be identified and fund for that will be made in the budget (Otley, 2016). All
the shifts which are taking place in the market will be dealt with the help of emergency funds
which will be created in the cash budget.

5
Difference between operating and cash budget
The cash budget is the recording of cash-related transactions that will be taking place
in the business whereas in the operating budget all the data in relation to operations will be
recorder whether it is in cash or non-cash manner (Jansen & Zarges, 2014). In cash budget
single budget is made but in the operating budget, there are various sub-budgets that are
prepared. They both are beneficial for the business as there will be proper planning which is
made and it helps the business in managing the operations and cash requirements in an
effective manner.
Importance of budget variance analysis
In the business, there are situations in which the actual performance is the difference
from the budget and then variances arise in business. The variance may be favorable or
adverse for the business and in order to determine its impact the variance analysis is
performed (Yahya-Zadeh, 2012). With the help of this monitoring will be made and there will
be proper control which will be established on the costs which are incurred in the business.
The variance analysis shall be performed at least once in every budget period so that all the
deviations can be identified on time and corrective actions can be taken.
Recommendations
From the findings which are made it is recommended to the business that the cash budget will
be prepared for all the periods and with that cash requirements will be met appropriately. All
the contingencies which may arise will be considered and incorporated in making the budget.
With that, the profitability and position of the business need improvement as the losses are
made in the current situation which needs to be eliminated. The variance analysis shows
various deviation and they will be reduced by incorporating the required changes in the
budget and by that overall improvement in the business will be made possible.

6
References
DeFranco, A. L., & Schmidgall, R. S. (2017). Cash Budgets, Controls, and Management in
Clubs. The Journal of Hospitality Financial Management, 25(2), 112-122.
Jansen, T., & Zarges, C. (2014). Performance analysis of randomised search heuristics
operating with a fixed budget. Theoretical Computer Science, 545, 39-58.
Otley, D. (2016). The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, 45-62.
Yahya-Zadeh, M. (2012). Comprehensive variance analysis based on ex post optimal
budget. Academy of Accounting and Financial Studies Journal, 16, 65.