Creating a cash budget

Planning for a final (commonly called master) budget will be incomplete without a cash budget.  This will show how money will be mvoed to and from the business account to make it possible to finance the company's activities.

BENEFITS

1.  PLANNING TOOL
A cash budget shows the cash effect of all plans made in the budget.  If the cash flow is negative, the company knows it either

• has to put more pressure on debtors or
• seek further sources of finance. 

For instance, disbursements are lumped together, and you need to spread your payments to creditors more evenly throughout the year.  This will lower bank credit and interest costs. 

2.  WARNING SIGNAL

A cash budget may also give management a sign of the potential problems that could emerge and gives them time to take action to avoid such problems.


An example of a cash budget
http://spreadsheets.google.com/pub?key=thlpxQ9A0KkLx27yOw9nvBQ&output=html