Cash budget - What is a cash budget?

A cash budget is an estimation of a person's or a company's cash inputs and outputs over a specific period of time

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Cash budgets are generally used to estimate whether a company has a sufficient amount of cash to uphold regular operations. It can also be used to determine whether too much of a company’s cash is being spent in unproductive ways.

By creating a cash budget - wherein a company develops a summary of the anticipated revenues, operating expenditures, sale and purchase of assets, and admission or settlement of debt – it is possible to determine when more cash resources are needed, as well as when there will be an excess of cash.

What is considered cash?

Cash is the amount of assets that a company has available to spend at any given time. These include bank balances, bank account deposits, and more. Liquidity is another word for cash.

Why should I have a cash budget?

A cash budget is very important, especially for smaller companies. It allows a company to establish the amount of credit that it can extend to customers without having problems with liquidity.

A cash budget helps avoid a shortage of cash during periods in which a company encounters a high number of expenses.

If your company cannot pay expenses because due to a cash shortage, this issue must be resolved immediately by bringing in more revenue, deferring or eliminating some of your costs, or by getting approval for a larger loan from your bank.

These solutions are costly, time-consuming, and not guaranteed, so it's best to plan for higher expenses ahead of time, if possible.

Ask your accountant for assistance

You typically prepare cash budgets for a period of 1-2 years, in monthly intervals.

It can be difficult to create a cash budget, so you may wish to consult someone experienced in working with your accounts and in creating budgets, such as your bank or your accountant.

Cash and Debitoor

In Debitoor, you automatically have a cash account from which you can register a balance, make and match payments, and keep an eye on whether your budget is on track.