A cash budget is a financial tool used to forecast and monitor a business’s cash flow movement over a set period of time. This is used to ensure that the company will have sufficient cash available to pay its bills and maintain an appropriate level of liquidity. Cash budgets must consider all sources of income as well as all of the expenses that are expected to occur during the period for which the budget is made. Since cash budgets are based on short-term planning, they are usually created for a range of 3-12 months of time.

A cash budget can provide a business with valuable insight on its financial health and ability to sustain operations through its analysis of the inflows and outflows of cash over the set period. Cash budgets are typically broken down into two parts: cash receipts and cash payments. Cash receipts refer to money received by the company in the form of payments from customers, whereas cash payments are related to payments that the company needs to make, such as rent, wages and suppliers. Knowing the amount of money that is coming in, and the money that is going out, give businesses a good view of its financial position. Cash budgets also provide a better understanding of the cash flow gaps that may exist between periods or between short-term estimates and the long-term budget.

In order to be successful with a cash budget, businesses must maintain accurate records and proper tracking of income and expenses to ensure that their receipts and payments are up to date. Companies must also remain willing to be flexible and change their budget accordingly, if necessary. For example, if unforeseen expenses pop up and the budget must be revised, companies should be able to quickly adjust the budget.

Overall, a cash budget is an important financial tool that allows businesses to have a better understanding of their cash flow, budget for upcoming expenses and maintain an appropriate amount of liquidity. It is a great way for companies to properly gauge how resources are being used, ensure that there is enough cash to meet obligations, and take corrective action if necessary.