Entrepreneurship and Small Business Management (MNE3701)
Institution
University Of South Africa (Unisa)
Book
Small Business Management
MNE3701 Assignment 5 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references,.....Having acquired sufficient knowledge and skills on entrepreneurship and small business management, you must demonstrat...
Entrepreneurship and Small Business Management (MNE3701)
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MNE3701
Assignment 5 Semester 2 2024
Unique number:
Due Date: 25 October 2024
Detailed solutions, explanations, workings
and references.
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, Asset Management Strategy for "Fresh Eats Bistro"
Introduction
"Fresh Eats Bistro" is a small, health-conscious eatery located in the heart of
Randburg. The business aims to serve fresh, organic, and locally sourced meals to
customers while promoting sustainable living. The restaurant will be equipped with
a dining area for 50 customers, a kitchen, a storage area for inventory, and
administrative space. The primary assets of "Fresh Eats Bistro" include cash,
accounts receivable, inventory, and equipment (such as kitchen appliances and
furniture). Effectively managing these assets is critical to ensuring the smooth
operation and profitability of the business. This discussion explores the strategies
I would adopt to manage the assets of "Fresh Eats Bistro" using the knowledge of
working capital management, cash flow management, inventory, accounts
receivable, and capital budgeting.
1. Managing Working Capital
The working capital cycle represents the flow of resources through cash, accounts
receivable, and inventory. In a small business like "Fresh Eats Bistro," efficient
working capital management is crucial to avoid running out of cash. The goal is to
maintain sufficient liquidity while ensuring the business operates smoothly.
The working capital cycle for the restaurant includes purchasing fresh ingredients
(inventory), converting them into meals (sales), collecting payment (cash), and then
reinvesting that cash into purchasing more inventory. To optimize the working
capital cycle, the restaurant will:
• Minimize inventory costs by carefully managing the stock of perishable
ingredients. For example, rather than over-purchasing, which leads to
spoilage and waste, I will monitor inventory turnover to ensure that
ingredients are used promptly. Assuming "Fresh Eats Bistro" spends
R100,000 on inventory per month, reducing waste by 10% can save
R10,000 monthly, which can be reinvested into other areas of the business.
• Control cash flow timing by negotiating favorable payment terms with
suppliers (e.g., paying within 30 days rather than upfront) to improve
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, liquidity. This will allow the business to collect cash from customers before
paying suppliers, thus minimizing cash shortages.
• Manage accounts receivable to shorten the time it takes to collect
payments from customers. While most transactions will be cash or card-
based, any credit accounts with businesses or institutions should have short
payment terms (e.g., 15 days). This ensures that cash is quickly available
for reinvestment into inventory.
2. Managing Cash Flows
Cash flow is critical for any small business, particularly in the food industry, where
running out of cash can disrupt daily operations. Cash inflows at "Fresh Eats Bistro"
will come primarily from daily sales, while outflows will be for paying suppliers, staff
wages, rent, and other operating expenses. Effective cash flow management will
focus on ensuring that outflows never exceed inflows.
• Cash Budgeting: I will create a cash flow forecast that predicts cash inflows
and outflows on a weekly and monthly basis. For instance, if the projected
weekly sales are R30,000 and the expenses for the same period are
R20,000, the surplus of R10,000 will be used to build a cash reserve for
unexpected expenses or reinvestment into the business.
• Revenue vs. Cash Receipts: It is essential to differentiate between revenue
and actual cash receipts. Not all revenue will be immediately available as
cash, especially if I offer catering services where payments might be
delayed. Therefore, cash flow projections will consider delayed receipts,
ensuring that I do not face a cash crunch due to overestimating liquidity.
• Maintain a Cash Reserve: To avoid liquidity problems, I will establish a cash
reserve equal to at least three months' worth of expenses. Assuming
monthly operating expenses are R150,000, I will aim to maintain a reserve
of R450,000. This reserve will protect against unforeseen events, such as a
sudden drop in sales or a supplier delay.
3. Managing Accounts Receivable
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