To make your company a success, you must understand your revenue and expenses. A cash budget allows you to estimate and track all of the money that comes into your business and leaves it. Every cash budget, whether used by a corporation or an individual, contains the same basic components.
Cash budgets contain three general parts, as indicated by the eSmallOffice website: the time period, desired cash position and estimated sales and expenses. The time period specifies how long the given cash budget will apply, such as six months or two years. The desired cash position shows how much cash you should have on hand; this is your reserve. The last part of a cash budget involves estimated sales and expenses, including items like payroll, advertising, and receipts and other income.
Income and Expenses
Estimated sales and expenses represent the most complex part of a cash budget. The elements of this part include the beginning cash balance, cash collections, cash disbursements, cash excess or deficiency, and ending cash balance. The beginning balance shows how much money you have before you've accounted for any expenditures or additional income. Cash collections are any monies your business takes in, such as sales receipts. Cash disbursements show where you must spend some of your money, such as on employee pay. Cash excess or deficiency indicates whether your business funds are sufficient to meet operating expenses and pursue projects. Financing indicates earnings on investments. The ending cash balance is how much you have left over once all your expenses are deducted and your income is added.
Tracking all parts of a cash budget can be time-consuming, especially in a large corporation where millions of dollars may change hands, but is not necessarily complicated once the information is available. Often, a simple spreadsheet similar to a check register is all that you and your accountants need to detail financial events. Although the approach to tracking all components of the budget is basic, cash budgets in large organizations often rely on information from different departments to put together the master document. For example, sales managers may be responsible for tracking sales income and expenditures, while advertising agents may have to document the cost of promoting the business. These workers then have to provide the accounting department with their data, and the accountants ultimately have to compile the information to make it meaningful as a "big picture."
Working with the components of a cash budget is a dynamic task, because the needs of the business can change over time. For example, a business may find that it needs to hire new workers to keep up with product demand. Economic conditions often dictate cash budget decisions and updates.