Cash Budget

Topics: Cost, Small business, Business Pages: 4 (1183 words) Published: May 3, 2014

Cash management in this economic environment is crucial. Cash is the life-blood of any business. As the saying goes, “Cash is king”. With so many banks tightening credit standards due to what’s happening in the credit markets or within their own lending portfolios, it is crucial that businesses fully understand their cash needs in advance and make adjustments to their operations to ensure that cash is available. Otherwise, companies may find themselves in a liquidity crisis –unable to meet payroll, pay suppliers, or pay subcontractors - which leads to bankruptcy or an operational shutdown.

Importance of Cash Budget

A cash budget is a projection of how your business will earn and spend money during an upcoming period. Preparing a cash budget is important because the process forces you to think about your expectations and plan for the future. It is important to follow your cash budget--unless unforeseen circumstances arise--because adherence to a plan can discipline your spending.

The most immediate practical benefit of a cash budget is restricting your spending so you do not incur debt. A cash budget involves a realistic assessment of how much money you will have coming in during an upcoming period. Your determinations of how much money your business has available to spend are based on these forecasts, forcing you to spend within your means. A cash budget places limits on your purchasing and forces you to restrict discretionary purchases of items that you can pay for out of the cash you have on hand.

A cash budget also provides the benefit of forcing you to think critically about your company's financial situation and make realistic predictions. This process is useful to you as a business owner working to maintain an accurate sense of your company's operations. When you prepare a cash budget, you must look closely at past patterns and use them to forecast future business...

References: Maya Pillai,2012. 10 Ways to Control Business Cost [online] (March 12, 2012) Available at: [Accessed 16 July 2013]
Devra Gartenstein. What are the Benefits of a cash Budget? [online] Available at: [Accessed 14 July 2013]
Devra Gartenstein. Why it is important to create a cash budget? [online] Available at:<> [Accessed 14 July 2013]
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