Cash budget

A cash budget is a document produced to help a business manage their cash flow.

A cash budget is prepared in advance and shows all the planned monthly cash incomings (receipts) and any planned cash outgoings (payments).

Preparing a cash budget has a number of benefits:

It can identify any times where there may be a shortage of cash. This will allow the business to plan ahead and arrange extra funding such as a bank .
It can help to regulate expenses. Any months where expenses are high will be highlighted by a cash budget.
It will clearly show where a business has more cash than expected () or less cash than expected (). This will allow a business to plan more effectively and make better decisions.
It can be used to show potential lenders or investors. This can help to secure in the business.
It can be used to set targets or budgets for individual departments. This may motivate employees as they have goals to achieve.

A cash budget is shown below:

Cash budget for Jill'’'s beauty salon for January - March
	January (£)	February (£)	March (£)
Opening balance	4, 000	2, 500	200

Receipts
Sales	3, 000	3, 000	4, 000
Subtotal	7, 000	5, 500	4, 200

Payments
Purchases	1, 000	800	800
Electricity	500	500	500
Rent	1, 000	1, 000	1, 000
Wages	2, 000	3, 000	2, 000
Subtotal	4, 500	5, 300	4, 300

Closing balance	2, 500	200	-100

Cash budget for Jill'’'s beauty salon for January - March	Opening balance
	4, 000
	2, 500
	200

Cash budget for Jill'’'s beauty salon for January - March

Cash budget for Jill'’'s beauty salon for January - March	Receipts

Cash budget for Jill'’'s beauty salon for January - March	Sales
	3, 000
	3, 000
	4, 000

Cash budget for Jill'’'s beauty salon for January - March	Subtotal
	7, 000
	5, 500
	4, 200

Cash budget for Jill'’'s beauty salon for January - March

Cash budget for Jill'’'s beauty salon for January - March	Payments

Cash budget for Jill'’'s beauty salon for January - March	Purchases
	1, 000
	800
	800

Cash budget for Jill'’'s beauty salon for January - March	Electricity
	500
	500
	500

Cash budget for Jill'’'s beauty salon for January - March	Rent
	1, 000
	1, 000
	1, 000

Cash budget for Jill'’'s beauty salon for January - March	Wages
	2, 000
	3, 000
	2, 000

Cash budget for Jill'’'s beauty salon for January - March	Subtotal
	4, 500
	5, 300
	4, 300

Cash budget for Jill'’'s beauty salon for January - March

Cash budget for Jill'’'s beauty salon for January - March	Closing balance
	2, 500
	200
	-100

The main items shown on a cash budget are:

Opening balance - This is the amount of money you have available at the beginning of the month. It is the same amount as the closing balance from the month before. Eg, in the table above the opening balance for February is £2, 500. This is the same as the closing balance for January.
Receipts – This is a list of all the money coming into the business such as sales or rent received. Eg, in the table above the receipts for January are £3, 000.
Payments – This is a list of all money you expect to go out of your business such as rent, wages or electricity. Eg, in the table above the payments for March are £4, 300.
Closing balance – This is the cash left at the end of the month after all payments have been taken away from the business receipts. Eg, in the table above the closing balance for March is -£100. This is a negative number as more money has gone out than has come in.

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