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Cash flow budget – and why having one matters for your business

A budget isn’t just an expense-cutting tool; it can help you grow your business by providing you with the structure you need to make smart financial decisions. By creating a cash flow budget, you can get an accurate snapshot of where your business stands financially at any given time and use that information to make adjustments accordingly.

Cash flow budget – and why having one matters for your business

Cash flow budget

A budget isn’t just an expense-cutting tool; it can help you grow your business by providing you with the structure you need to make smart financial decisions.

By creating a cash flow budget, you can get an accurate snapshot of where your business stands financially at any given time and use that information to make adjustments accordingly.

Consider this as the guide that will help you to understand how an updated cash flow budget can help your business.

To be exact, in this guide, we will cover the following.

1. What is a cash flow budget?
2. Why your cash flow budget is not your cash flow statement?
3. Short-term cash flow budget vs long-term cash flow budget
4. The benefits of having a cash flow budget for your business
5. The benefits of having an updated cash flow budget for your business
6. Best practices to consider when updating your cash flow budget
7. How to make the most use of your cash flow budget
8. How Dania Accounting can help you

Let’s dive in.


What is a cash flow budget?

A cash flow budget or cash budget is defined as a tool that can help you stay on top of your business’s finances.

This budget will let you see how much money you are bringing in and how much money you are spending, as well as any potential income sources. If something unexpected happens, you won’t have to scramble to keep afloat.

Simply said, a cash flow budget contributes to more effective cash management.

It shows you when additional financing is necessary before the actual need arises.

And it indicates when excess cash is available for investments or other purposes.



Why your cash flow budget is not your cash flow statement?

This might be a bit confusing at first, but once you have established a firm grasp on these terms and their meaning, you will see why they should be kept separate.

A cash flow budget is a forecast (prediction) of your revenue and expenses for an upcoming period.

In contrast, a cash flow statement shows what happened to your business over that same period — it is a statement of fact, not a prediction.

The value in having both budget and statement is obvious: without a cash flow budget, your statements won’t match up with reality; without actual statements, your cash budget can’t predict anything.


Short-term cash flow budget vs long term cash flow budget

Short-term cash flow budgeting can be best explained as working out how much cash is flowing in sales and how much cash is going out in terms of your business expenses each month.

This will help you keep track of your business’ finances, prevent overspending and increase profits.

However, it only covers one part of your overall business budgeting; long-term cash flow budgets are much more complex and factor in assets like loans, investments and property.

While short-term cash flow is vital for running your company, ensure that you have a full picture of your company’s current financial situation by reviewing both figures together.


The benefits of having a cash flow budget prepared for your business

A cash flow budget allows you to take a look at your business from a different perspective, one that includes finances.

It’s also worth mentioning that a cash flow budget will help keep you on track with your goals for expanding or reducing staff or coming up with additional revenue streams for your company. You don’t need to develop complicated spreadsheets or utilize complex software programs—although these are helpful tools—to stay on top of your finances.

By taking control of your cash flow, you’ll be able to improve your company’s bottom line.


1. You will learn how to spend and invest your money wisely

Knowing where your cash flows are crucial for a successful business.

A cash flow budget lets you see how much your company makes and spends over time.

It also shows whether those numbers fit your company’s goals, such as saving for taxes or growing profits.

By reviewing these figures each month with your team, you can make informed decisions about everything from hiring new employees to investing in new equipment.

This will help you manage your cash flow more efficiently by eliminating waste and allowing you to put money toward tasks that provide long-term value for your business.


2. You won’t get caught off guard by unexpected expenses

One of the main ways a cash flow budget helps your business is by revealing potential problems before they get out of hand.

For example, if one of your suppliers suddenly increases prices on you, your budget might show the impact on profits — helping you decide if it’s worth searching for a cheaper alternative before prices increase further down the line.

And when unexpected expenditures do come up, you’ll be able to handle them without having to panic because you know your exact financial situation.

As a result, you can maintain better control over your overall spending plan and respond to emergencies instead of waiting until they worsen.


3. You will have a realistic estimate of future finances

Another benefit of using a cash flow budget is being able to predict when certain purchases are coming due so you can prepare ahead of time.

Maybe you want to add another location but don’t have enough saved for rent, utilities, inventory and staff salaries all at once.

Without knowing what future costs might be, you could scramble to find enough capital at crunch time.

With a cash flow budget, however, you can plot out your plans months in advance and put aside extra funds accordingly.

This way, when expensive bills arrive, later on, you won’t be caught off guard and forced to rush through major investments just to keep your business afloat.


4. You will ll be less likely to overextend yourself financially

Even the smallest issues can snowball into bigger ones quickly if you let them linger.

If your cash flow isn’t where it should be, chances are good that other areas of your business aren’t.

When you have a clear idea of all your income and expenses, you have a fighting chance against mismanagement, whether internally or outside factors that cause trouble.

Your ability to foresee upcoming spikes in your business’s income levels may even allow you to take advantage of opportunities earlier than your competitors, giving you an edge.


5. Your financial security will improve

The final reason having a cash flow budget is important for businesses comes back to cash itself.

While running low on resources can throw many companies into chaos, it doesn’t have to limit yours.

After all, cash is the lifeblood of a business.

That being said.

You need to update your cash budget to fully benefit from having a cash flow budget for your business.


Why do you need to update the cash flow budget of your business?

Many business owners think they can keep running their cash flow off last year’s budget.

That is simply not true.

Once you start taking in actual cash, your financial situation will change, meaning you need to update your budget based on the changes.

In this case, having an updated budget gives you a clear picture of where your money is going so that if any changes are necessary, you have room to adjust your spending habits accordingly.

To illustrate better the importance of having an updated cash flow budget, we will break down the consequences of not having an updated cash flow budget.

When revenues aren’t lining up with your cash flow budget, as a business owner, you may decide to cut back on certain expenses—but it won’t always be easy.

If your rent is due and you don’t have enough money in your bank account to cover it, you could end up paying late fees or even being evicted from your space. And those sorts of financial issues will have a huge impact on other aspects of your company as well.

If you can’t pay for office supplies, you might have to delay the production of marketing materials.

If you can’t pay your employees at all, then they may start looking elsewhere. Of course, companies strapped for cash also tend to make poor decisions when funding new initiatives like product development — which means missing out on opportunities (and losing even more revenue).


How often should you update your cash flow budget?

It’s important to keep your cash flow budget updated regularly, whether you use it regularly or not.

The whole purpose of having a budget is to make sure you can pay your bills when they come due.

As your business changes, your budget should change with it to accurately reflect your financial position at any given time.


Best practices to consider when updating your cash flow budget


1. Consider automating your process

Automating your cash flow budget ensures that everything is up-to-date at all times. If you choose to automate, look for programs with automatic reporting capabilities and built-in reporting tools such as charting and forecasting.


2. Plan ahead for irregular fluctuations

Some businesses face seasonal variations in their sales volume. For example, some restaurants rely heavily on tourism influx to remain profitable throughout a certain time frame. A flexible cash flow budget will allow you to anticipate seasonal dips and build them into your operating plan, so you don’t accidentally fall short when business drops off because of events beyond your control.


3. Set aside reserves for unexpected situations

Part of building a healthy cash flow budget includes planning for what happens if things don’t work out as expected. Build reserve amounts into your budget based on worst-case scenarios instead of best-case projections to ensure that you always have enough funding available if your plans change suddenly due to an emergency.


How to make the most use of your updated cash flow budget

A cash flow budget is a critical tool for business owners to ensure they have enough working capital.

The budget will show you how much income your business will get from sales and services and what expenses your business will incur in a given period.

When you use your budget to track your expenses against income, you can see if any gaps need to be filled or opportunities that can be seized quickly.

For example, if you’re running low on inventory and find that your supplier is offering a great deal right now, knowing about it makes it possible to take advantage of those savings.

If it’s later in the month when you notice such an opportunity, not having access to capital or merchandise may force you into paying more or taking longer than planned to receive necessary items.


How Dania Accounting can help you with your cash flow budget

We remove the guesswork and the stress that comes with preparing your cash flow budget.

Through our unbiased opinions and experience, we can help you to create your cash flow budget that is not only updated but functional as well.

So that you could better understand your current cash flow and avoid unnecessary troubles due to lack of cash flow earlier by spotting potential crises earlier on.



(This blog was updated: 13.9.2022)