Cash receipt is a specialised accountthat accounts for cash or credit sales received and analyses thesecash inflows. In City Racquetball Club, there are 2 main factorsaffecting the cash receipt and they are the annual membership feesand the hourly court f
1)Cash receipt is a specialised accountthat accounts for cash or credit sales received and analyses thesecash inflows. In City Racquetball Club, there are 2 main factorsaffecting the cash receipt and they are the annual membership feesand the hourly court fees.
The annual membership fees are more direct with a fixed fee that isonly collected annually. Therefore, annual membership fees areconsidered to be factors that are constant and fixed. However, forthe hourly court fees, their fixed priced per unit vary from $6 to$10 and transactions transact every day. The total price will varyas the hourly court fees are dependent on variables such as thenumber of hours spent in the club, number of customers, season ofthe year and the time of the day, whether it is the prime time orthe non-prime time. Therefore, cash flows generated from the hourlycourt fees are not fixed and are unpredictable it mainly covers alarger area of the cash receipts compared to the annual membershipfees.
With the new implementation of the newmembership plan, City Racquetball Club will be able to improve itsability to plan its cash receipts. This is because, with the hourlycourt fees taken out, only the annual membership fees are left tobe charged which means that factors affecting the cash receipts aretremendously reduced.
Annual membership fees are fixed and constant which will result ingenerating lesser and more predictable cash flows. Possible loss ofcash daily from the hourly court fees are also eliminated from theimplementation of the new membership plan. These fluctuations arenot predictable and are subtle. Therefore, realization of thesefluctuations will only occur after a period of time which mightlead to a possibility of City Racquetball Club going into financialdebts.
Cash receipts will be better planned with the improvement of cashflow management and drafting out future financial plans such asavoiding idle or shortages of cash will be more effective.Implementation of the new fee structure will not affect CityRacquetball clubâs overall profit. In fact, it will also have ahigher possibility of increasing profit or a reduction on theexisting or future debts.
Conclusion:. Yes, City Racquetball Clubshould be better able to plan its cash receipts with the newmembership plan and fee structure. The cash flows should be morepredictable and certain because the large, prepaid membership feebecomes the only factor affecting cash receipts. The hourly courtfees, which were dependent upon a variable that could fluctuatedaily, are eliminated.
2 a)Customerâs reaction to new feestructure:
The first key factor will be on how existing or new customers reactto the new price and packages change which will lead to the causeof the third factor, a loss or a gain to the company. When CityRacquetball club decides to take out the hourly court fees andraise a higher annual membership fee, they are taking a big risk asthey will be losing a certain number of customers. Customers willcompare with other competitors of City RacquetBall club andconsider if paying for a higher annual membership fee is more worthit. City Racquetball club will have to be able to provide morebenefits compared to their competitors with a raised package price.The two-month promotional campaign by the club is a good example ofhow it will be able to help retain existing customers or attractnew ones.
Cost to implement the new membership plan:
The second key factor will be the overall cost to implement the newmembership plan and the change of the fee structure. CityRacquetball Club is implementing a new system and this process canalso be called a changeover. When implementing a changeover, thecost can be very high if no proper planning and evaluation isinvolved. City Racquetball Club will need to reduce as much costsas possible to achieve what is called a lean changeover. Cost fromimplementing a new fee structure will come from different factorssuch as extra training involved needed for frontline staff andstaff from the finance department. Frontline staff will need to betrained on the new prices, handling customersâ possible queries andfamiliarizing the new packages implemented on systems or on manualforms. Staff from the finance department will be thoroughly briefedover the new implementations as producing accounts for end of yearchecks with new prices and packages can be confusing. The financedepartment will also need to generate emails and mails to allcustomers to inform them about the new implementation. All thesefactors will require additional manpower which will result inpossible premium overtime from existing staff or hiring a temporaryemployee.
Profit or loss:
The third factor will be analyzing if this new implementation willcause the company to earn or incur a loss. The main cash inflow ofCity Racquetball club is from customers purchasing the hourly courtfees and the annual membership fees. An analysis of this factorwill include how the new membership fee structure have to cover thelosses of cash inflow generated from the hourly court fees and theloss of customers who do not wish to continue with their existingannual membership package. The management of City Racquetball clubhas done a part of the analysis by estimating the loss of membersand the cash inflow generated from the new annual membership feeprices. The new prices will be able to offset fully the lossesincurred within six months of implementing the new plan. CityRacquetball club will have to analyze and estimate the number ofcustomers that will be increasing or decreasing during differenttime of the day after implementation of the new plan as sincecustomers are paying for annual membership fee, most will considervisiting the club during the prime time of the day which will causeovercrowding
b)Financial Analysis is used toevaluate if the project will be suitable or successful forinvestments. The 3 types of financial analysis we will be lookinginto is Balance Sheet, Income Statement and the Cost Volume ProfitAnalysis.
The Balance Sheet:
The balance sheet is one of a financial analysis that will assistCity RacquetBall club in comparing and analyzing the expectedperformance of the new fee structure with the companyâs currentfinancial position from reports of the companyâs assets,liabilities and all monetary units such as transactions of themembership fees.
The second type of financial analysis is the income statement. Theincome statement will be able to assist RacquetBall club to viewits performance over a period of time and from this performanceviewing, they will be able to better analyze to see if they are inany position to be able to implement new plans into the company.The income statement will be able to portray the companyâs revenuesearned and expenses incurred and from this report, they will beable to see how well they have been progressing on their profit andloss with the current packages and compare with the estimated valueof the new package.
Cost Volume Profit Analysis:
The third financial analysis method City RacquetBall Club canconsider using is the cost volume profit analysis. This financialanalysis will help the company analyze how the companyâs profitwill be affected by the different variable costs (hourly court feesand the fixed costs (annual membership fee). It will help incomparing with the current fee structure and the new fee structurefor example, analyzing if the variable cost of hourly court feesplay a major part in the companyâs profit and if by taking thispackage out, will the companyâs profit move downwardspermanently.
a.Factors that management should consider beforeadopting the new membership plan and fee structure include:
* Costs associated with the plan changeover
* Public acceptance of the new proposal
* The expected number of memberships by classes that can be soldfor each plan at the specified rates
* The anticipated rate of return for excess cash or cost ofborrowing funds in periods of cash shortages
b.Financial analyses conducted by CRC managementcould include a forecast of projected cash inflows and outflows bymonths, an income statement including interest revenue and expense,a cost-volume-profit analysis, and a cash management plan forexcess cash or cash shortages.
3)Cash management is about handling thecash flow and the usage of cash in the company. The presentmembership plan consists of different variable and fixed unit costswhich will result in many different and unpredictable cash flows.With such cash flows, cash management will be less effective andmore complicated as there are too many different fees andtransactions on a daily basis.
With the new membership plan implemented, cash management will beimproved and more effective as cash flows are more fixed,predictable and simplified compared to the old membership plan.City RacquetBall club will be able to better collect, manage anduse of cash to invest on short-term investments and avoid fromincurring any huge losses that will result in the company goinginto debts or into insolvency state.