You are here

Cash budget - What is a cash budget?

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

Cash budgets are mostly used to estimate whether or not a company has a sufficient amount of cash to fulfill regular operations. You can also use it 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 – one can determine when more cash resources are needed, and when there will be an excess of cash.

Handing over cash
A cash budget helps determine whether or not a company has enough cash to operate

What is considered to be cash?

Cash is the amount of assets that a company has available to spend immediately. 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 you avoid having a shortage of cash during periods of numerous expenses.

If you cannot pay your expenses because you have a cash shortage, you must resolve this problem right away by bringing in more revenue, deferring or eliminating some of your costs or being approved for a larger loan from your bank.

These solutions are costly, time-consuming, and not guaranteed, so it's therefore 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.


Try reviso for free for 14 days

Reviso is a cloud accounting platform providing efficient online collaboration between small businesses and accountants.

Choose between two different trials, both containing all the core features of our accounting system. One of the trials is without data and can be upgraded to a subscription within the 14 days period.