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