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Cash Flow Budget
A cash flow budget is a projection of your business's cash inflows and
outflows over a certain period of time. A typical cash flow budget predicts the
anticipated cash receipts and disbursements of a business on a month-to-month basis.
However, a cash flow budget could predict the cash inflows and outflows on a weekly or
daily basis. Because of the uncertainty involved in the cash flow budget, trying to
project too far into the future may prove to be less than worthwhile. At the same time, a
cash flow budget that doesn't look far enough into the future will not predict future
events early enough for you to take corrective action in your cash flow.
A six-month cash flow budget minimizes the amount of uncertainty
involved in the budget. It also predicts future events early enough for you to take
corrective action. However, if you're applying for a loan, you may need to create a cash
flow budget that extends for several years into the future, as part of the application
process.
The primary purpose of using a cash flow budget is
to predict your business's ability to take in more cash than it pays out. This will give
you some indication of your business's ability to create the resources necessary for
expansion, or its ability to support you, the business owner. The cash flow budget can
also predict your business's cash flow gaps — periods when cash outflows exceed cash
inflows when combined with your cash reserves. You can take cash flow management steps to
ensure that the gaps are closed, or at least narrowed, when they are predicted early.
These steps might include lowering your investment in accounts receivable or inventory, or
looking to outside sources of cash, such as a short-term loan, to fill the cash flow gaps.
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Preparing a cash flow budget involves
four steps: |
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1. Preparing a sales forecast. |
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2. Projecting your anticipated cash inflows. |
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3. Projecting your anticipated cash outflows. |
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4. Putting the projections together to come up
with your cash flow bottom line. |
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Included among our many Business Tools
is a very helpful and easy to use  cash
flow budget worksheet. The
worksheet is set up to be used for projecting your cash flow for six months. We've
formatted the worksheet and put in most of the cash inflow and outflow categories for you.
All you have to do is print it and put in your numbers. Once you've printed the worksheet,
feel free to modify the worksheet to fit your own needs. Enjoy! |
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