Preparing a Cash Budget

Ask yourself:

1.      How does cash flow into and out of my company throughout the year?

2.      Are we able to meet our current financial obligations and goals, and can we accommodate future changes without exceeding our budget?

3.      With a reasonable degree of accuracy, what will our funds balance be at the end of this month? Mid-way through the fiscal year? At the end of the year?

4.      What is our "cash plan" for the coming month, quarter or year?


You will need to gather the following financial statements: balance sheets and income statements for the current period as well as the most recent 2-3 years, as well as sales forecasts for the current period and the coming year.  

In regard to maintaining a cash reserve, ask yourself the following questions:  

1. How much cash is necessary for meeting short-term obligations in case of a cash-flow emergency?

2. How much money do we currently keep on hand?

3. If we are holding too much, how could the excess be put to better use? If we are not holding enough, what is our plan for making up the difference?

Example of a Cash Budget

The following is a sample 90-day cash budget for Zoya Skincare, a fictitious beauty supply business:

                                Zoya Skincare Inc. Cash Budget for 90 Days
Beginning cash balance
$ 320,000
    Estimated collections on accounts receivable


    Estimated cash sales


    Estimated payments on accounts payable
$ 800,000
    Estimated cash expenses
    Contractual payments on long-term debt
    Quarterly dividend
Estimated ending cash balance
$ 170,000

Analysis of Sample Cash Budget

An analysis of Zoya's financial statements shows that the accounts receivable remain at about $500,000 throughout the year; that is, there is no seasonal fluctuation in sales. The accounts receivable turns over six times a year, or once every 60 days. The inventory throughout the year remains at about $800,000 and turns over every 90 days. The accounts payable remains at about $400,000 and turns over eight times a year, about once every 45 days. With an accounts receivable collection period of 60 days and an average balance outstanding of $500,000, it appears that $750,000 is the amount that should be collected on the receivables in 90 days. Cash sales should amount to about $250,000 if the inventory of $800,000 valued at cost turns over once in 90 days, and if the average markup is about $200,000. Therefore, if an inventory of $1,000,000 at retail turns over once every 90 days, and $750,000 flows through accounts receivable, then approximately $250,000 must be sold on a cash basis. Cash payments for expenses are estimated to be $150,000 in the next 90 days. This figure can be roughly checked by referring to the expenses on Zoya's income statement. A rough measure of the cash expenses can usually be obtained by using the operating expenses less any non-cash expenses, such as depreciation. For example, if there is no seasonal factor, the total amount divided by four should be an approximate check on the amount budgeted for the next 90 days.  

Your Turn

Print out and use the table below to create a cash budget for your company.  

Cash Budget Worksheet

Estimated Cash Balance at the Beginning of the Period


Total Inflows

Cash Sales

Collections of Credit Sales

Bank Loans

Total Outflows

Payment to Suppliers

Payments of Operating and Other Expenses

Payments of Equipment Loan and Interest

Payments of Bank Loan and Interest


Investment in Short-Term Securities

Estimated Cash Balance at the End of the Period