MANAGEMENT

Your business has been growing steadily at 15-20% per year since you started it in his home a few years ago. Last year you did $350,000 in total sales, mostly in the summer months. You currently rent office and storage space and have one part time paid employee. You take $1500 cash out of the business every month rather than get a regular paycheck, but have another job as well that provides most of your income. Your business is currently set up as a sole proprietorship, which means your business does not pay taxes, but rather they are included on your personal tax return. You decide that it is time to start running your business full time and want to get a $100,000 loan to build your own facility rather than keep renting. To get the loan, the banker wants to see financial statements and you have already provided the past three years of income statements and balance sheets. The banker now wants a 6 month pro forma cash flow statement before she will make the loan. You have gathered the following information and have partially set up the table below to create the statement: Current cash balance: $18,750 (Oct 1) Sales pattern average for the last three years and anticipated to continue: 71% of sales are credit sales to other businesses. 29% of sales are for cash. Collections of credit sales: 68% of the credit sales are collected by the end of the month after the sale was made, the remainder are collected by the end of the next month (2 months after the sale was made). Average expenses (Use the average amounts above for September’s actual amounts as well): Utility: $800 per month Rent: $ 1200 per month Truck loan: $ 387 per month Insurance: $1200 twice a year in August and February. Office supplies: $95 per month Maintenance: $75 per month Computer supplies: $75 per month Advertising: $550 per month Legal and accounting: $250 per month Misc.: $60 per month Total September wages were $2285. Anticipated total wages including taxes and all benefits: October: $2050 November: $1825 December: $1725 January: $1950 February: $0 March: $2425 July sales were $48,750, all of which he has been paid. August sales were $48,000. He was still owed $34,080 of this amount at the end of August, received $23,174 in September, and expects to get the rest in October. September sales were $17,840. He is still owed $12,666 and expects to collect $8316 in Oct. and the remainder Nov. Projected sales are: October: $17,500 November: $16,500 December: $13,000 January: $12,500 February: $13,800 March: $17,500 The company pays 63% of its sales price for inventory, but does not pay it for 30 days after it buys the inventory (net 30). The owner only reorders what he sells every month. Example: He sells $10,000 in month one, he reorders the inventory at the end of month one, but pays $6300 for the inventory at the end of month two. Although you have been trying for several months, you now anticipate the bank will make the loan in January, but that means you will not buy the land or build until April. One of the issues was that the bank required you to put in $50,000 of your own money into your business at the same time they make the loan. You now have the $50,000, but will not put it into the business until January as well. You anticipate an interest rate of 12% per annum, or 1% per month, on the bank loan. You have make principle payments on the loan of $1000 per month plus interest starting in February. Finish the cash flow statement adding items, rows, and columns as needed. Include the beginning cash for September. SEP Oct Nov Dec Jan Feb Mar Beginning Cash 18,750 Receipts Cash sales 5174 Accounts Receivable collections Total receipts (cash in) collected this period Loans Other cash added Total cash in this period Disbursements (cash out) Inventory Rent Truck loan ` Cash withdrawal other Total cash out this period Ending cash 18,750