Develop a Cash Flow Plan

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Business Finance

Description

Read the mini-case study, Bulltuff Stock Trailers, Inc., from Entrepreneurial small business and answer the mini-case study questions, keeping in mind the following considerations:

  • What is causing Hal’s cash flow problems?
  • Develop a plan to address the problems.

Your well-written paper should meet the following requirements:

  • Be 3-4 pages in length, not including cover and reference pages.
  • Be formatted according to the CSU-Global Guide to Writing and APA Requirements.
  • Cite a minimum of three sources--two of which should be academic peer-reviewed scholarly sources to support your responses--in addition to your textbook. The CSU-Global Library is a great place to find these resources.

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BULLTUFF STOCK TRAILERS, INC. Hal Carrier, of Bulltuff Stock Trailers, Inc., has asked you for help. In the last four months, he has had several checks written to suppliers that were refused by his bank because of nonsufficient funds. Now his main supplier, Alcoa Aluminum Supply Co., has cut off credit "We're sorry, Halı" Alcoa's credit officer said, “but we simply cannot keep accepting your checks. Every time one bounces, it costs us at least $100 combined in processing fees and our internal accounting. You simply will have to pay cash or bring a cashier's check for future purchases." Hal simply cannot understand why his checks keep bouncing. "We've plenty of sales," he said, "and our customers pay pretty much as agreed. Right now, I have only one customer who is as much as 60 days past due. My accountant, Brill Yant, assures me that our cash balance never goes negative. So why are my checks bouncing?" To try to understand Hal's problem and to advise him how to correct it, you have collected the following information about Hal's business: 1. Cash sales are 10 percent of total sales. 2. Credit card sales are 10 percent of total sales and are collected the week following the sale. The credit card provider deducts 2.5 percent of the gross amount of each credit card sale. (For example, on a $100 sale, $2.50 is deducted.) 3. Sales on account are 80 percent of all sales. All credit sales are to dealers. Terms for dealers are "30-30-30," that is, three equal payments made in each of the three months following the sale. Payments are considered late if they're not received by the tenth of the month in which they are due. 4. Direct materials, primarily aluminum, are 60 percent of the cost of building a trailer. Before credit was cut off, Bulltuff paid 30 percent on delivery and the remainder in 30 days. Now it must pay cash on delivery. 5. Total cost of direct labor is 15 percent of the cost of building a trailer. Workers are paid each Friday for work performed the previous week. Withholding and employment taxes are paid each Friday, also. 6. Variable costs combined (e.g., materials and labor) are 50 percent of gross sales. Fixed costs are not allocated to the cost of trailers but are expensed evenly across the year. 7. All other costs combined are treated as fixed costs, and total $1 million per year. 8. Bulltuff leases its building and equipment and has no depreciation. 9. Sales for the year were originally projected to be $2,450,000. However, given the current growth in sales, Hal now estimates that sales will be $5,000,000. 10. Sales for the first four months of the year have been: January $208,000 February 261,000 March 293,000 April 328,000 CASE DISCUSSION QUESTIONS 1. What is causing Hal's cash flow problems? 2. Develop a plan to address the problems.
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Explanation & Answer

hello. here is your task. have a look at it and in case of anything just contsct me

What are Hal’s cash flow problems?

There are two main causes that could be leading to this cash flow problems. First, Hal is
expected to pay bills immediately. This does not matter how long he has to wait for his debtors
to pay him for sales he has made in credit. Secondly, his business is said to have grown by
approximately 12% per month. Due to addition of cash payments for things like labor, materials
and even sales that is expected to be made in every month exceeds the cash payments that his
customers make by about a third of the sales that his business receive due to the realized sales
increase. This is a very good example of what accountants refer to as growth trap which has been
said to be causing failure in many of the busines...


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