How to Calculate a Cash Budget

by Charlotte Johnson
A business may be less profitable if it does not closely analyze its cash inflow and outflow.

A business may be less profitable if it does not closely analyze its cash inflow and outflow.

To stay afloat and prosper, a company must keep track of its incoming and outgoing cash. A cash budget is a type of management plan in which a business tracks the amount of money coming in, as well as its expenditures over the course of a specific period of time. A cash budget operates much like a personal budget, but on a larger scale. By analyzing its cash budget, a company can make more informed decisions concerning vital areas, such as production, investments and cutting costs.

1. Write down a beginning cash amount. For example, a business might have $20,000 cash in the bank.

2. Write down the cash that the company expects to receive within a particular time frame. For example, a business might expect $30,000 in sales and $25,000 in accounts receivable for the month of January.

3. Add the expected cash receipts from step two to the amount of cash on hand. In this example, you would add $30,000 and $25,000 to $20,000 to get a total of $75,000 total cash.

4. List and add all expected cash payments. Examples of these types of payments might include $50,000 for payroll, $5,000 for raw materials, $1,500 for utilities and $1,000 for advertising. The total for this example would be $57,500 in expected cash payments.

5. Subtract the total expected cash payments from the total cash amount to find the ending cash balance. In this example, you would subtract $57,500 from $75,000 to get an ending cash balance of $17,500.

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