What’s a cash budget?


Every business should have a system in place for optimizing and managing the rate of cash inflows to outflows. That is, understanding the business revenue streams in relation to expenditure. 

A cash budget is a financial and budgeting tool that facilitates managing and understanding a business's revenue-to-expenditure rate. 

What is a cash budget?

A cash budget is a financial statement that explains an organization's cash inflow and outflow over a specific period. It estimates a business's expected revenue and expenditure, which could be weekly, monthly, quarterly, or even yearly, depending on the business structure, financial state, and accounting goals. 

A cash budget aims to clarify a business's financial state by highlighting how much it makes in relation to how much it loses due to expenses. This helps business owners, accounting executives, and financial professionals understand if a business has enough cash balances to continue operating over a specific period. 

How do cash budgets work?

Businesses create cash budgets and monitor cash flows by making sales and production forecasts. They also analyze past performance and use predictions about future spending and accounts receivable collections to create a clear cash budget.

A cash budget can be either positive or negative. A positive cash budget means the business has extra cash after paying all its expenses. This extra cash can be used to invest, make purchases, and pay down debt. 

On the other hand, a negative cash budget means that the company's expenses surpass its income. If the company does not have enough money to operate, then the company will have to raise capital. This can be done by getting a loan or issuing stock. 

We calculate a cash budget by deducting the total amount of expenses from the total amount of generated revenues. Then we use the ending cash balance of the month as the beginning cash balance for the following month. 

What is the main objective of a cash budget?

The main aim of a cash budget is to give a clear understanding, estimate, and track all the inflows and outflows over a period of time.

A cash budget clarifies the several revenue streams of a business, from cash receipts in terms of cash sales, cash inflows from account receivable collections, interest payments, and other sources of revenue. 

In addition, the cash budget also explains how money leaves the business by highlighting expenditures such as purchases, rent, salaries and wages, utility bills, equipment purchases, and many more. 

A clear cash budget lets the business owner know when surplus cash is in the company and can redirect that money into more profitable areas. The business owner also knows that when his expenditures have risen higher than the business income, he decides on the steps to take to correct this.

Why are cash budgets important?

  • Cash budgets help to account for cash inflows and outflows 

A cash budget makes it easy for someone without accounting experience to understand the available financial information. 

  • Cash budgets highlight cash deficits in the business

A cash budget makes it obvious when the business expenditures have risen higher than the cash inflows. It helps the company take the proper steps to raise capital without further delay.

  • Cash budgets help regulate expenses

Many factors can affect costs and sales in a business. There are times when the cost of production rises higher than it usually is.

A cash budget, being a financial plan, helps financial analysts recognize the periods when expenses rise higher, thus allowing them to create countermeasures to reduce the effects of the increased cost of production and try to reach a healthy cash flow. 

What are the 5 parts of a cash budget?

There are specific components that make a cash budget what it is. These components include:

1. Beginning cash balance

This section of your cash budget highlights a company's starting amount at a specific time. We need the beginning cash balance to discover the total amount of money available in the company. 

2. Cash receipts 

Cash receipts refer to the income or revenue streams of the business. Cash receipts are a section in your cash budget that lists the sources of revenue, such as cash sales and interest payments. 

3. Cash payments

This component of your cash budget details all the company's expenses during a specific period. It also includes credit collections of expected payments from clients who owe the company money. 

4. Cash excess or deficiency

This section of your cash budget states the excess cash available after deducting cash outflows (expenditure) from cash inflows (income). Cash deficiency refers to a situation where there is no spare cash available. Instead, the company owes money because the amount spent on expenditure surpassed the company's income.

5. Ending cash balance

This is the final cash balance generated after subtracting the total amount spent on expenditure from the total income generated.

What are the types of cash budgets?

There are two types of how cash budgets are viewed. They are short-term cash budget and long-term cash budget.

  • Short-term cash budgets

This cash budget contains the company's financial information and cash estimations for the next weeks or months. It focuses on utility bills, payroll, operating expenses, and payments to suppliers. 

  • Long-term budgets

Long-term cash budgets detail a company's cash flows over the years. This type of cash budget requires more planning and analysis as they describe more complicated cash flows, such as expanding the business into new markets. 


While it's clear that the movement of money is an essential part of every business, not all businesses intentionally create a financial plan highlighting how money comes into their company and leaves it. This could make their finances more organized and lead to the mismanagement of resources and debt.

Cash budgets are an easy-to-utilize solution to this. A cash budget provides an organized and detailed financial plan about the expected cash receipts and how money moves in your business while encouraging effective management and company cash allocation.

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