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We are focusing on one of
the most practical aspects of
financial management,
the cash budget.
The CASH budget is a vital
tool organizations use to
estimate future cash inflows and
outflows over a specific period.
Forecast is not just about
predicting cash balances,
it ensures that a
business will have
enough liquidity to
meet its obligations.
Unlike the income statement
or balance sheet,
which measure profits
and overall position,
the cash budget is concerned
with cash movements to
prevent shortages and plan
for short term financing.
Managing cash effectively is
fundamental to the success of
any business from
small sole proprietorships
to large corporations.
Let's examine the structure
of a typical cash budget.
It has three sections,
cash receipts,
cash payments, and
resulting cash balances.
Cash receipts stem from sales,
both cash sales and collections.
So the sales budget directly
informs the cash budget.
Cash payments cover outflows
like payments to suppliers,
wages, overheads,
and capital expenditures
or loan repayments.
Subtracting payments
from receipts
plus the opening balance,
gives the closing balance,
highlighting potential
cash shortfalls
and enabling timely action.
The primary aim of creating
a cash budget is to
ensure liquidity,
making sure the business
can pay its bills on time.
The cash budget acts as
an early warning system,
showing when cash
shortfalls may arise,
so management can prepare
rather than reacting crisis.
It also helps identify
surplus cash for investment.
