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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