Checklist to do a Cash Budget



The steps involved in this process are:

  • Step 1: Estimate cash coming in.
    Cash sales or cash received from customers who buy on credit will be the main source of incoming cash. Cash may also come in from the sale of assets, from cashing in investments, or from repayment of loans the business has made.

  • Step 2: Estimate cash going out.
    The business will have to estimate the cash it needs to pay out for wages, stock, raw materials, overheads, vehicle expenses, loan repayments, purchase of assets, etc. It is far better to overestimate the cash that will go out of the business so there is a slight reserve in case of unexpected events. Having to find cash for expenditure, which has not been budgeted for, can cause real problems for a business that is on a tight budget.

    Overheads such as rent, telephones, power, etc. are fixed costs that generally do not vary much at all during the year, so they can be easily calculated; however, cash required for variable costs such as stock, selling expenses, vehicle costs, etc. are much harder to work out because they depend on the level of sales the business is achieving.

  • Step 3: Work out the net cash gain or loss.
    You arrive at this figure by subtracting the cash going out from the cash coming in. The resulting figure is the net cash gain or loss.

  • Step 4: Bring in the cash balance at the beginning.
    This is simply the cash on hand, either in the office or sitting in the bank account at the beginning of the period. If the business runs on overdraft, it will be the balance of the overdraft in the bank account.

  • Step 5: Calculate the balance of cash remaining.
    This balance is the important figure in the whole exercise of cash flow because it shows the amount of cash that is available at any time during the period covered by the cash flow calculations.

    The business owner should monitor the increase or decrease in this balance from month to month, because it is a good indication of whether the business has a stable operation (if there is steady increases), or that the business has potential problems ahead (if the cash balance continues to decrease).

  • Step 6: Calculate the amount of cash required for the future.
    Finally, the business owner needs to assess the cash flow statements and pinpoint the times during the financial period when cash may be required, or when there is excess cash sitting in the bank and some investment should be looked into.


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