The hotel has only one outlet, Delicious Cafe. Here is the caf data for you to prepare

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Question:

The hotel has only one outlet, Delicious Cafe. Here is the café data for you to prepare the cash budget for three months commencing Apr 2021. (Mr M is not interested in the first three months, Jan to Mar cash budget as he had already put aside an operating cash balance of $40,000).

Budgeted Sales

	Feb	Mar	Apr	May	Jun
Cash Sales	6,000	6500	7800	8600	10200
Credit Sales	4,000	4500	4200	4400	4500
Total	10,000	11,000	12000	13000	14700

Notes: You are informed that 80% of credit sales are settled by clients within one month, the balance of 20% is settled with a time lag of 2 months.

Budgeted Food Cost

The café operates at a Food Cost of 40%. Seventy percent (70%) of Food Cost represents current cash purchases. Thirty percent (30%) of Food Cost is purchased on credit and settled in the month following purchase.

Budgeted Labour Cost

	Apr	May	Jun
Kitchen Staff	1215	1415	1775
Waiting Staff	935	1075	1235
Other	550	610	610
Total	2700	3100	3620

Employees are paid in the same month for the wages that they earned.

Budgeted Overheads

	Jan	Feb	Mar	Apr	May	Jun
Nominal Rent				700	700	700
Depreciation				820	820	820
Insurance				10	10	10
Gas	75	75	80	80	85	90
Electricity	75	50	40	35	40	45
Telephone	10	10	15	15	15	20
Total	160	135	135	1660	1670	1685

Notes

The nominal rent of the restaurant is payable in two half yearly instalments, each June and December.

Depreciation is provided every month.

The full annual insurance premium is payable on 17th of June.

The gas electricity and telephone accounts are payable each January, June and December.

Requirement

Mr M thinks that a cash budget is not necessary for his business as the bank has enough funds to cover the expenses for the following month. In your opinion, write a detailed report about the cash budget based on the following:

ii) Suggest ways you could overcome the cash flow if it turns negative and then redraw the new cash flow statement.

iii) Provide explanations to the owner on why the cash flow budget is important for the F&B business and advise what should be done in the future to enforce on the cash flow management.