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Cash Flow Budget

A cash flow budget is a projection of your business's cash inflows and outflows over a certain period of time. A typical cash flow budget predicts the anticipated cash receipts and disbursements of a business on a month-to-month basis. However, a cash flow budget could predict the cash inflows and outflows on a weekly or daily basis. Because of the uncertainty involved in the cash flow budget, trying to project too far into the future may prove to be less than worthwhile. At the same time, a cash flow budget that doesn't look far enough into the future will not predict future events early enough for you to take corrective action in your cash flow.

A six-month cash flow budget minimizes the amount of uncertainty involved in the budget. It also predicts future events early enough for you to take corrective action. However, if you're applying for a loan, you may need to create a cash flow budget that extends for several years into the future, as part of the application process.

The primary purpose of using a cash flow budget is to predict your business's ability to take in more cash than it pays out. This will give you some indication of your business's ability to create the resources necessary for expansion, or its ability to support you, the business owner. The cash flow budget can also predict your business's cash flow gaps — periods when cash outflows exceed cash inflows when combined with your cash reserves. You can take cash flow management steps to ensure that the gaps are closed, or at least narrowed, when they are predicted early. These steps might include lowering your investment in accounts receivable or inventory, or looking to outside sources of cash, such as a short-term loan, to fill the cash flow gaps.

Preparing a cash flow budget involves four steps:

  1. preparing a sales forecast
  2. projecting your anticipated cash inflows
  3. projecting your anticipated cash outflows
  4. putting the projections together to come up with your cash flow bottom line

Business Tools

Included among the Business Tools is a cash flow budget worksheet. The worksheet is an Excel template that can be used in Excel 4.0 or higher. Because it's a template, you can use the worksheet over and over again and still retain an original copy of it.

The worksheet is set up to be used for projecting your cash flow for six months. We've formatted the worksheet and put in most of the cash inflow and outflow categories for you. All you have to do is put in your numbers and print it.

Once you've downloaded the worksheet, feel free to modify the worksheet to fit your own needs. Enjoy!