1-Outline the steps to develop a cash budget

A cash budget is a map showing the amount and timing of a firm’s cash receipts and expenses. To prepare it, various steps are followed. The first one is to determine an adequate minimum cash balance which is based on experience.  The cash receipts should also be forecast.  The sales of the company are also predicted, where three estimates are established, the most likely one, the pessimistic and optimistic values. The next step is to forecast cash disbursements, where the values are only recorded when actually received. Then, the end of the month cash balance is estimated. This is obtained by adding the beginning cash balance to the receipts and then subtracting the disbursements. This may result in a shortage or surplus.

2-How can an entrepreneur launching a new business forecast sales?

There are various ways in which an entrepreneur can forecast sales. One of them analyzes the trend of other companies which deal with similar products. This is achieved by determining the times when the enterprise is expected to make a lot of sales. When forecasting sales, an entrepreneur should establish three estimates. One for the most likely sales to be achieved. Additionally, pessimistic and optimistic sales are also set.  From the analysis of the three values, it becomes easy for the entrepreneur to determine the expected average value of sales. Sales can also be forecasted using cash receipts and disbursements. This is because the sales are converted into these two components of the cash budget.

3-Describe the steps for developing a projected income statement for a new business.

An income statement shows a comparison between the revenues and expenses of a company to show the net income. There are various steps to developing a projected income statement. The first one is to establish the forecasted sales, expenses and depreciation. This will help to determine the predicted operating income. The forecasted interest and taxes are also identified. The sum of the operating income and the taxes and interest is obtained to determine the anticipated net income. This implies that to prepare a projected income statement, all its components should first be forecasted. It is aimed to show the net income the company will get from carrying out business activities for a certain period.

4-Describe the steps for developing a balance sheet for a new business.

A balance sheet shows the net worth of a company. It shows the assets and liabilities owned by the firm. To prepare a statement of financial position, various steps should be followed. First, the fixed and current assets of the firm should be determined. Additionally, the liability and owners equity of the company also establishes. The sum of the liabilities and equity are summed together. The value is then subtracted from the amount of fixed and current assets. The difference between the assets and liabilities of a company shows its net worth. Al, the values used in the preparation of the balance sheet are obtained from the forecasted financial elements.

5-How can a break-even analysis help an entrepreneur planning to launch a business?  What information does it provide?  What are the steps?

The breakeven point is the level of operation where a company neither makes profits or losses. The revenue obtained is equivalent to the expenses.  It enlightens entrepreneurs on the minimum necessary level of activity to stay in business.  It also informs entrepreneurs on the level of sales required to reach a specific target profit. To calculate the break-even point, the expense of a company is expected to incur first determined. The costs are then categorized into fixed and variable expenses. The next step is to determine the ration of variable expenses to net sales. The break-even point is then calculated where the break-even sales are obtained by diving the estimated fixed cost by the contribution margin expressed as a percentage of sales.

 
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