How to Make a Cash Budget for Your Business
You could think of a budget as a "record in advance," projecting future inflows and outflows for your business. A budget is usually prepared for a single year, generally to correspond with the accounting year. It is then broken down into quarterly and monthly projections.
There are different kinds of budgets, including cash, production, and sales. A cash budget, for example, forces the firm to think ahead by estimating sales and expenses for a particular period of time. Once reasonable projections are made for every important product line or department, the owner-manager sets sales and expense targets for employees. You must plan to assure a profit. And you must prepare a budget in order to plan. A sample cash budget is shown below.
| Expected Cash Receipts: | |
| 1. | Cash sales |
| 2. | Collections on accounts receivable |
| 3. | Other income |
| 4. | Total cash receipts |
| Expected Cash Payments: | |
| 5. | Raw materials |
| 6. | Payroll |
| 7. | Other factory expenses (including maintenance) |
| 8. | Advertising |
| 9. | Selling expense |
| 10. | Administrative expense (including salary of owner-manager) |
| 11. | New plant and equipment |
| 12. | Other payments (taxes, including estimated income tax; repayment of loans; and interest) |
| 13. | Total cash payments |
| 14. | Expected cash balance at beginning of month |
| 15. | Cash increase or decrease (item 4 minus item 13) |
| 16. | Expected cash balance at end of month (item 14 plus item 15) |
| 17. | Desired working cash balance |
| 18. | Short-term loans needed (item 17 minus item 16, if item 17 is larger) |
| 19. | Cash available for dividends, capital cash expenditures, and/or short investments (item 16 minus item 17, if item 16 is larger than item 17) |
| Capital Cash: | |
| 20. | Cash available (item 19 after deducting dividends, etc.) |
| 21. | Desired capital cash (item 11) |
| 22. | Long-term loans needed (item 21 minus item 20, if item 21 is larger than item 20) |
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