You Be the Consultant In Search of a Cash Flow Forecast "I'll never make that mistake again, Douglas Martinez said to himself as he got into his car. Martinez had just left a meeting with his banker, who had not been optimistic about the chances of Martinez's plumbing supply company getting the loan it needed. "I should have been better prepared for the meeting," he muttered, knowing that he could be angry only at himself. That consultant at the Small Business Development Center (SBDC] was right. Bankers' primary con- cern when making loans is cash flow. "At least I salvaged the meeting by telling him wasn't ready to officially apply for a loan yet," Martinez thought. "But I've got a lot of work to do. I've got a week to figure out how to put to- gether a cash budget to supplement my loan application. Maybe that consultant can help me." When he returned to his office, Martinez gath- ered up the file folders containing all of his fast- growing company's financial reports and printed his projected revenues and expenses using his computer spreadsheet. Then he called the SBDC consultant he had worked with when he was launching his company and explained the situation. When he arrived at the consultant's of- fice that afternoon, they started organizing the information. Here is what they came up with: Current cash bal- $8,750 ance Sales pattern 71% on credit and 29% in cash 68% in the same month as Collections of credit sales the sale 19% in the first month af- ter the sale 7% in the second month after the sale 6% never collected (bad debts) Sales fore- casts: Most Pes- simistic Opti- mistic Likely ikely July (actual) - $18,750 August (actual) - $19,200 $17, 840 September (actual) October November December $15,000 $17,500 $19,750 $14,000 $16,500 $18,500 $11,200 $13,000 $14,000 $9,900 $12,500 $14,900 $10,500 $13,800 $15,800 $13,500 $17,500 $19,900 January February March Utilities expenses $800 per month Rent $1,200 per month Truck loan $317 per month The company's wages and salaries (including payroll taxes) estimates are the following: October $2,050 November $1,825 December $1,725 January $1,725 February $1,950 March $2,425 The company pays 63 percent of the sales price for the inventory it purchases, an amount that it actually pays in the following month. (Martinez has negotiated "net 30" credit terms with his suppliers.) Other expenses include the following: Insurance premi- $1,200, payable in August and February ums Office supplies $95 per month Maintenance $75 per month Computer sup- plies $75 per month Advertising $550 per month $250 per month Legal and ac- counting fees Miscellaneous expenses $60 per month A tax payment of $1,400 is due in December. Martinez has established a minimum cash bal- ance of $2,000 and can borrow money at an in- terest rate of 8.75 percent. for Create a 2 month | Douglas beginning in cash budget October