Cash flow budget

accounting

The cash flow budget consists of that document that tries to forecast the inflows and outflows of currency in cash of a company.

In this sense, the cash flow budget helps us to have a marked route during a certain period, so that at no time will we have the objective of accurately matching the amounts for the current year.

In the previous formula we understand the real balance as that amount that has been given at the end of the year; the estimated balance as the one developed in the cash flow budget; and the net variation as the positive or negative difference between both balances.

Main features of the cash budget

In this budget we must pay special attention to several factors when making it. Some of these factors are:

  • Estimated payment to suppliers and creditors essential for the activity.
  • Sales projection of the most outstanding product line / s of the business.
  • Establishment of minimum balances related to ordinary activity.
  • Special control in seasonal or cyclical cash flows of notable importance.

In this way, if we take these factors into account, a basic and quality cash budget can be made. It should be noted that depending on the sector to which the business belongs, the cash flow budget will vary in one way or another.

In addition, one of the great advantages of using this budget is that the lack of liquidity is avoided at key moments for a company, such as in summer moments of large sales volumes, such as the Christmas campaigns or those at the beginning. of the school year, among others.

Cash flow budget examples

To better understand the budget, two examples of businesses where the realization of this budget is more than justified will be presented below:

  • Toy stores: In this case, although toy stores are a business that remains constant throughout the year, it is in the months of December and January when more than half of the total volume of sales for the year is actually billed. It is, therefore, crucial to make the budget to first foresee the cash that we must make use of in the store, and on the other hand, to assess whether the income and expenses of the target year have been or not what was expected.
  • Kiosks: In the case of kiosks, the use of cash is the main way in which income is made, not expenses. Hence, forecasting cash levels depending on the season of the year becomes a primary aspect in this type of business.

As we can see, the retail and seasonal presence businesses are the ones that should pay the most attention to the cash flow budget, since if they do not do so, they run the risk of not being able to carry out the ordinary activity satisfactorily. .

On the other hand, a special mention should also be made of the control function performed by this budget. This will allow us to compare in the future the evolution of the company's cash flow year after year.

Operating cash flow

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