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A cash budget is a forward-looking financial plan that estimates cash inflows and cash outflows over a specific future period, whether weekly, monthly, quarterly, or annually. The basic formula is: opening cash balance plus expected cash receipts minus expected cash disbursements equals the closing cash balance. A cash budget differs from an operating budget, which focuses on revenue and expenses, and from a cash flow statement, which records what actually happened in a past period. The cash budget is predictive; the cash flow statement is historical.
Think of a cash budget like a weather forecast for your bank account: it tells you whether to expect sunshine or a storm before it arrives so you can prepare accordingly.
Cash budgets expose a problem that income statements often hide: a business can be profitable on paper while simultaneously running out of cash. A company that books revenue on 60-day payment terms but pays its own suppliers in 30 days is profitable but chronically short on cash during the gap. The cash budget forces you to project the actual timing of receipts and payments, revealing these mismatches before they become crises.
Short-term cash budgets, typically weekly or monthly, are operational tools used to manage day-to-day liquidity, plan payroll cycles, and time supplier payments. Long-term cash budgets, typically quarterly or annual, are strategic tools used to assess whether the business will need external financing, when to schedule capital expenditures, or whether planned growth is sustainable. Seasonal businesses need both: a detailed short-term budget for the high season and a longer-range budget to manage cash through lean months.
A single-case cash budget can create false precision. Adding scenario analysis builds resilience by testing what happens if receivables collection slows by two weeks, a major customer cancels, or raw material costs spike. Each scenario produces a different projected closing balance. The gap between the best and worst scenarios tells you how much cash cushion you actually need to survive a plausible adverse outcome.
Sources:
https://corporatefinanceinstitute.com/resources/accounting/cash-budget/
https://www.accountingtools.com/articles/what-is-a-cash-budget.html
https://www.netsuite.com/portal/resource/articles/accounting/cash-flow-forecasting.shtml
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