6 Easy Steps to Create Cash Budget for Your Business

July 14, 2020

Cash is the fuel that keeps your business running. Cash flow can be defined as the way money flows into and out of your business. From here, we can distinguish which business will be able to last and which one will not.

Cash flow cash analysis is a method to check your company's financial health. Analysis of the movement of cash through your business (or better known as the cash budget) is the determinant on how your business accepts and pays money. The aim is to maintain enough cash flow to meet all the company’s operations from month to month.

How is Cash budget determined? What’s the Cash budget formula? 

While determining cash budget depends on a number of factors一long term or short term, economic conditions, sale and production forecasts, etc.一it would typically comprise of the following elements:

  • Beginning cash balance: The ending balance of the previous month
  • Cash inflows in a month (aka total receivables within that time frame)
  • Cash outflows in a month (eg. expenses such as rent and supplier payments)
  • Financing received (eg. credit line)
  • Ending balance: This will be used as the beginning balance in the next month

Be sure to have a clear idea of the above and make the necessary preparations to acquire these figures before you start to create a cash budget for your business.

A rough cash budget formula should look like this: 

Beginning cash balance + total cash inflows for the month - total cash outflows for month - financing repayments = Ending balance

With these stepping stones in place, here are the detailed steps you need to take to help you with your cash budget.

A Step-by-Step Guide on How to Create a Cash Budget

1. Determine the cash inflow to the company in a month

This type of cash flow analysis is referred to as cash budgeting preparation and analysis, which is part of your company's short term financial forecasting.

To start, determine the amount of cash that will flow into your company in one month. If you are just starting your business, you should have a rough estimate of the initial balance in cash that you aim to have. In addition, you also need to determine the number of sales you will have during the first month. Sales should include cash sales and sales that you make from customers who pay via credit.

2. Determine the cash outflow from the company in a month

Now that you've determined your cash inflow, you need to do the same with your cash outflow. This is the money a business disburses, which can fall under the following categories:

  • Operating activities — Payment to suppliers, vendors, and employees
  • Financing activities — Funds used to pay dividends or buy shares
  • Investing activities — Expenditures made to acquire fixed assets or loans to external entities

Especially for small businesses, it is essential to always be on top of your cash outflow as it helps founders make better decisions for the company, protects internal and external business relationships, and helps you understand where you're spending your money.

3. Ensure that your cash inflow must be greater than the outflow

Every businessman certainly wants their flow of cash coming into the company to be greater than the amount of cash flowing out of your company. When the time comes, where a business ends up with greater cash outflow than cash inflow, they may need to file for bankruptcy eventually. That's why founders must carefully plan and assess their expenses to minimise the risks.

Having greater cash inflow also ensures that you will have enough funds to run your company in the long run.

4. The ending balance for the first month must be the beginning balance for the second month

One important and fundamental rule in making a cash budget is to include the ending balance for the first month as the beginning balance for the second month.

Each month, you may have to add more items to the analysis as your business grows. In order for your business to run well, you have to decide the minimum ending balance that your company must have each month.

5. If the cash flow turns negative, you will have to borrow money

In business, accounts receivable or borrowing money are not new concepts. If the cash flow turns negative or is facing a deficit in funds, you will have to borrow money to cover the lack of cash for the month.

Borrowing money can be done from family, friends, investors or from banks and other financial institutions. If your cash flow is positive the following month, you can pay back the loan.

💡 Tips: Need a flexible and quick way to get access to working capital or manage negative cash flow? Tap into Aspire Credit Line.

6. Be consistent with the cash budget during the planned period

Be consistently on doing the cash budget every month. Try to keep your loan to a minimum and your cash inflows greater than the outflows. Remember that a cash budget is a financial planning document and try to be as consistent with this as possible.

Components of a Cash Budget

To create a successful company, you must plan your income and expenses as well as possible. A cash budget allows you to estimate and track all the money that comes into your business and leaves it. Whether it's used by companies or individuals, each cash budget generally contains the same basic components.

General components of cash budgeting

While there's no cash budget formula per se, the elements of cash budgets typically contain three general parts: the time period, desired position and estimated sales and expenses. The time period determines how long the cash budget will be applied. Generally, the time period is every six months or two years. The desired cash position shows how much cash the company should have, which is your reserve. Finally, the estimated sales and expenses should include items such as payroll, advertising, receipts and other income.

Income and Expenses

Estimated sales and expenses represent the most complex part of a cash flow budget. The common elements should include the initial cash balance, cash collections, cash disbursements, cash excess or deficiency, and ending cash balance.

Here are the elements broken down in greater detail:

  • Initial cash balance — Shows how much money you have before calculating any expenditures or additional incomes
  • Cash collections — Includes the entire amount of cash that comes in whatever form your business receives such as sales receipts
  • Cash disbursement — Shows you where your cash is spent such as employee payroll
  • Cash excess or deficiency— Indicates whether your business funds are sufficient to meet all operating expenses and the costs to pursue various projects
  • Ending cash balance — How much money you have left after deducting expenses and adding all income
💡 Tips: Manage all money matters in a unified platform through the Aspire Business Account.


Tracking all parts of your cash budget can be time consuming. This is especially true for large companies where billions may exchange hands in a matter of hours.

Although complicated, a simple spreadsheet similar to a check register can often help ease the task to examine every detail of the cash flow. Accountants are required to be more observant in tracking all components of the cash budget as large organizations often rely on information from various departments to put together the master document.

For instance, sales managers are responsible for tracking sales income and expenditures while advertising agents must document the costs of promoting the business. These individuals will then have to provide the data to the accounting department and must compile the information to make it meaningful.


Working with the components of a cash budget is a dynamic task because business needs can change over time. More often than not, uncertain economic conditions often influence cash budget decisions and updates.

Now that you are equipped with all the information you need, it's time to create a cash budget for your business. Take note of the steps above to ensure your business finances are well in place. If you want to take it up a notch, the Aspire Business Account can help business owners manage their expenses in a unified and seamless platform. Through the expense management feature, you can control your finances and monitor your cash inflow and outflow each step of the way.

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