What is a Cash Budget?
Cash budget is a review or projection of cash inflows and outflows. It can be used as a tool for analyzing the revenues and costs of a company or individual.
How Does a Cash Budget Work?
A cash budget is a planning tool used by companies and individuals to evaluate projected cash flows during a specified period of time (e.g. monthly, quarterly, annually).
For example, if a company's cash budget forecasts itemized inflows (income) of $1,000,000 and itemized cash payments (expenses) of $800,000, management can feel fairly certain that it will have enough cash to pay all of its bills.
Why Does a Cash Budget Matter?
A cash budget allows companies and individuals to evaluate income versus expenses. Managing cash resources is the first step toward growing a company or individual's bottom line. Moreover, lending institutions may use a cash budget to help determine whether or not to grant a loan or extend credit to a company of individual, which makes monitoring cash flow even more important.