The Genesis operations management team is now preparing to implement the operating expansion plan. Previously, the firm’s cash position did not pose a challenge. However, the planned foreign expansion requires Genesis to have a reliable source of funds for both short-term and long-term needs.
One of Genesis’s potential lenders tells the team that in order to be considered as a viable customer, Genesis must prepare and submit a monthly cash budget for the current year and a quarterly budget for the subsequent year. The lender will review the cash budget and determine whether or not Genesis can meet the loan repayment terms. Genesis’s ability to repay the loan depends not only on sales and expenses but also on how quickly the company can collect payment from customers and how well it manages its supplier terms and other operating expenses. The Genesis team members agreed that being fully prepared with factual data would allow them to maximize their position as well as negotiate favorable financing terms.
The Genesis management team held a brainstorming session to chart a plan of action, which is detailed here.
- Evaluate historical data and prepare assumptions that will drive the planning process.
- Produce a detailed cash budget that summarizes cash inflow, outflow, and financing needs.
- Identify and compare interest rates, both short-term and long-term, using debt and equity.
- Analyze the financing mix and the cost associated with the recommendation.