Question

1.what is the challenge in budgeting if the business is a SKI resort and cash flows vary with the season. 2. as a new owner of an existing business what resources do you have to prepare a porforma cash budget. 3.Is there any volume limit that is impractical to achieve given the current fixed capital

Answer 1

1. SKI resort is a resort developed for skiing, snowboarding and other sports. It is mostly seen in Europe. Ski resort is a seasonal business. The peak season for Ski resort is winter time mainly from December to March or December to May in some areas. In this time ski resorts manage to earn income for the entire full year. In the off-peak season many ski resorts may close down completely and manage only basic services such as accounts payable and/or maintenance work. Some ski resorts manage to continue their business in off seasons also because most families likely make some attempt to avoid peak season at ski resorts, and for good reason. Peak season is always more expensive than the shoulder or off-peak season, and peak season has, well, peak crowds. There is nothing worse than spending time in a chairlift line when you know the skiing up on the mountain is incredible also during off-peak season. In recent years, the use of snow cannons has increased due to the fall in the volume of snow. In order to obtain good quality snow, dust or bacteria is mixed with the water in the process of snow making to form better snowflakes. So it can be expensive for the business.

Based on the season the cash flow of the business also varies so it is very crucial to make proper cash budget to stay afloat during low income season or any adverse season where there is low snowfall. But it creates many challenges to make the accurate cash budget because of uncertainty of cash flow during off season and uncertainty of weather. So, to prepare the cash budget it has to make good guess or estimation of the cash flow during the seasons by the help of experienced staffs. It has to analyze the past records of cash flow and should have the ability to understand the weather, expected snow fall in the seasons. It also has to make cash reserves through the cash budget to spend in snow cannons to create artificial snow during low snowfall.

2. A cash budget is important for a variety of reasons. For one, it allows you to make management decisions regarding your cash position (or cash reserve). Without the type of monitoring imposed by the budgeting process, you may be unaware of the cycle of cash through your business. At the end of a year or a business cycle, a series of monthly cash budgets will show you just how much cash is coming into your company and the way it is being used. Seasonal fluctuations will be made clear.

              A cash budget also allows you to evaluate and plan for your capital needs. The cash budget will help you assess whether there are periods during your operations cycle when you might need short-term borrowing. It will also help you assess any long-term borrowing needs. Basically, a cash budget is a planning tool for management decisions.

             The creation of a cash budget requires you to make estimates (or best guesses) about many different aspects of your company and the environment in which it operates. Future sales will be contingent on many things, not the least of which is competition, the local economic climate and your own internal operations and capacity. In addition, after sales are estimated, potential costs must also be derived. The important thing to keep in mind while arriving at these figures is that past experience is important, but so is intuition.

             As a new owner of the existing business the available resources are financial reports of past years which is a very important document needed for budgeting and also the past records of budgets prepared for the company. The most treasured source is experienced employees. Business owners must consult with experienced line managers, suppliers, and key personnel to make the best guess possible about the relationship between the goals for the period and their effect on cash receipts and cash expenditures to prepare most fruitful budget for the company.