A Ian Spiro, formerly a taxi-driver, decided to establish a car-hire business after inheriting \(£ 50,000\).

His business year would be divided into budget periods each being four weeks.

He commenced business on a Monday the first day of period 1, by paying into a business bank account \(£ 34,000\) as his initial capital.

All receipts and payments would be passed through his bank account.

The following additional forecast information is available on the first four budget periods of his proposed business venture.

1 At the beginning of period 1 he would purchase 6 saloon cars of a standard type; list price \(£ 6,000\) each, on which he had negotiated a trade discount of 11 per cent.

2 He estimates that four of the cars will be on the road each Monday to Friday inclusive, and at weekends all six cars will be on the road. Hire charges as follows:
Weekday rate \(£ 10\) per day per car Weekend rate \(£ 18\) per day per car He estimates that this business trading pattern will commence on the Monday of the second week of period 1 , and then continue thereafter.
All hire transactions are to be settled for cash.
Note: a weekend consists of Saturday and Sunday. All remaining days are weekdays.
3 An account was established with a local garage for fuel, and it was agreed to settle the account two periods in arrear. The forecast gallon usage is as follows:
\begin{tabular}{cccc}
Period 1 & Period 2 & Period 3 & Period 4 \\
200 & 200 & 400 & 500 \end{tabular}
The fuel costs \(£ 1.80\) per gallon.
4 Servicing costs for the vehicles would amount to \(£ 300\) per period, paid during the period following the service. Servicing would commence in period 1.
5 Each of his vehicles would be depreciated at 25 per cent per annum on a reducing balance basis.
6 Fixed costs of \(£ 200\) per period would be paid each period.
7 He had agreed with a local firm to provide two cars on a regular basis, Monday to Friday inclusive, as chauffeur driven cars. The agreed rate was \(£ 60\) a day (per car), payment being made in the following period.
This contract would not commence until the first day of period 2, a Monday.
8 Drawings: Periods 1 and 2: \(£ 400\) a period.
Periods 3 and 4: \(£ 800\) a period.
9 Wages and salaries:

(a) Initially he would employ 3 staff, each on \(£ 320\) a budget period. Employment would commence at the beginning of period 1 .

(b) On commencement of the contract the two additional staff employed as chauffeurs would each receive \(£ 360\) a budget period. Payments are to be made at the end of the relevant period.
10 In anticipation of more business being developed he planned to buy a further three cars for cash in period 4. The cars would cost \(£ 6,500\) each and it was agreed he would be allowed a trade discount of 10 per cent.

Required:

(a) A detailed cash budget for the first four budget periods.

(b) An explanation as to why it is important that a business should prepare a cash budget.

(c) Identify how a sole proprietor may finance a forecast cash deficit distinguishing between internal and external financial sources.