Businesses can experience several cash flow issues, from poor bookkeeping to buying too much inventory. A lack of a cash flow budget is a significant problem that can leave companies unsure of how much money is entering and leaving their accounts each week.

When your company creates a cash flow budget, it is empowered to plan for the future, ensure it can meet expenses and make more informed financial decisions regarding its income streams. Creating an effective cash flow budget puts your business on the path to greater knowledge of its finances.

What Is a Cash Flow Budget?

A cash flow budget is an assessment of a business’ cash inflows and outflows, along with a plan for paying its debts and other obligations. Managing funds is crucial to a business’ success and growth, and a cash flow budget is a valuable tool for accomplishing that goal. A cash flow budget is a forecast of a company’s income and expenses and changes based on financial circumstances. Cash flow budgeting involves assessing your business’ finances and estimating future cash flow rather than calculating a specific number.

A cash flow plan, as this budget is also called, projects cash flow over a specific accounting period, such as a month, quarter or year. The budget is a guide for businesses to assess the liquidity of their money. A cash flow budget doesn’t necessarily measure a company’s profitability but examines the movement of funds and provides a roadmap for determining whether the business can continue its daily operations.

Nearly every aspect of operating your business requires funds, from completing payroll to paying rent and buying supplies. Keeping tabs on your business’ income and expenses through a cash flow budget helps your company ensure it can pay its expenses.

what goes into creating a cash flow budget

What Goes Into Creating a Cash Flow Budget?

A cash flow budget may include several different elements. Here are some of the important figures business owners should have in their cash flow budgets:

1. Sales Forecasts

The data you include in your cash flow budget should include all your business’ cash inflows and outflows. Sales forecasts are a critical category of business income. Sales forecasts estimate the income you can expect over the period your cash flow budget covers.

To estimate your sales income for the period of your cash flow plan, multiply the number of sales units or customers you expect during the weekly, monthly or quarterly period by the cost of those units. Include every income avenue in this calculation, including all goods and services.

2. Operational Expenses

Your business’ operational expenses are an essential type of cash outflow. Knowing when you need to pay your expenses helps you budget for them. Subtract your operational expenses from the cash inflow you’ve already tracked.

The operational expenses you include in your cash flow budget may vary depending on the period you’ve chosen for your budget to cover. For example, a short-term cash flow budget that only focuses on a single month should include expenses like payroll, rent, utility bills and other investments. A long-term cash flow plan that covers an entire year might include long-term investments and capital expenditure on buildings or equipment.

3. Debt Payments

Include your business loan payments in your cash flow budget. Paying your debts is vital for maintaining your company’s financial health. The timing of these expenses may vary, so a weekly cash flow plan may not include any debt payments. However, taking these payments into account is essential for getting an accurate picture of your cash outflow.

To calculate your business’ debt payments within a weekly, monthly or quarterly period, determine how much you pay toward any loans during the period. Include loans like a mortgage, business taxes and any other debt.

4. Accounts Payable and Receivable

Your company’s accounts payable and accounts receivable are crucial elements in cash flow forecasting. Accounts payable lists your short-term obligations for goods purchased from suppliers or services rendered from contractors. Accounts receivable outlines the income you can expect from your customers and partners. Both of these amounts contribute to the movement of money into and out of your accounts. Subtract accounts payable and add accounts receivable to the other figures in your cash flow budget.

How To Use the Cash Flow Margin Calculator

  1. Fill in net income.
  2. Fill in depreciation and amortization.
  3. Fill in the increase in net working capital.
  4. Fill in sales revenue amount.
  5. Press Calculate.