Cinema Cash Budget

This question is a tricky one, but you can do it! Think about how the cinema operates first (draw a diagram
if it helps), then apply the numbers.

Old university friends and film fans Helen, Judy and Meryl run an independent cinema with a very different
offering from the large cinema chains. The one-screen cinema seats 250 people on two levels. It attracts
audiences who enjoy the experience of watching old and new films in an original 1930s cinema. The cinema
offers luxurious décor, table seating and a wine list for the audience. The friends decide to prepare a cash
budget for the coming months. They want to see if they can pay off their overdraft which at the end of
August 2022 was £124,890. They gather the following information:

• Tickets for downstairs table seating (40% of seats) are priced at £11 and upstairs seats (60% of seats)
priced at £9.

• The cinema is usually 80% full every month. In October, they expect a 10% fall in ticket sales, for
just this month.

• During the months September to December the expected number of film showings will be 30, 35,
30, 35 each month respectively. In August 35 films were shown.

• Season tickets cost £150, and holders can watch one free film per week for a year. These are only
available to buy in November and they hope to sell 25 season tickets this year.

• It is estimated that for every £1 the customer spends on a film ticket £0.40 is spent on food and
drink. The food and drink cost the cinema 40% of the food and drink spend. This cost is paid to food
and drink suppliers in the month following the sale. (Season tickets can be ignored when considering
food and drink).

• Licensing is complex:
o Annual license fee of £1,000 paid in Oct
o A fixed fee of £85 per film shown
o 35% of ticket sales go to the film distributor in the month following sale

• Other expenses of £17,000 per month are paid in the month incurred

Required:

a) Prepare a cash budget for the months Sep, Oct, Nov, and Dec 2022. State if, and when the overdraft
will be paid off.

b) Explain the benefits of preparing a cash budget for the cinema.

c) Explain what your cash budget is telling you. Do they have a healthy cash position. What
recommendations might you make to the owners based on your cash budget?

d) Streaming services, virtual reality headsets and multiplex mergers are examples of threats to
cinemas’ business models. There are others. Make notes on how you think cinemas might respond
to their changing competitive environment and what implications there might be on the finances of
cinemas. Do you think an independent cinema like this one can survive?