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 to Create 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. This is part of your company’s short term financial forecasting.

Determine the amount of cash that will flow into your company in one month. If you are just starting your business, you should the initial balance in cash that you want to have every month.

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 to customers who pay on credit.

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

You will have expenses each month. For example, you need to buy stationeries or office supplies, pay for car maintenance and its fuel, and pay your employees.

Other monthly expenses include advertising costs as well as taxes. However, there are also other expenses that occur occasionally. For example, purchases of computer equipment, vehicles, or other larger expenses.

3. Cash inflow must be greater than the outflow

Every businessman certainly wants the flow of cash coming into the company to be greater than the amount of cash flowing out of your company. This means that monthly cash inflow must be carefully planned and cash outflow must also be minimized. So, you will have enough cash to run your company.

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

Each month, you may have to add more items to the analysis as your business grows.

You have to decide the minimum ending balance that your company must have each month so your business can run well.

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 you are facing a deficit, 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.

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

Keep 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 cash budget is a financial planning document but try 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. Each cash budget, whether used by companies or individuals, contains the same basic components.

General Components

Cash budgets 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 6 months or 2 years. The desired cash position shows how much cash the company should have. This is your reserve.

The final component of cash budgets is the estimated sales and expenses. This includes 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 elements of this part include the initial cash balance, cash collections, cash disbursements, cash excess or deficiency, and ending cash balance.

The initial cash balance shows how much money you have before calculating any expenditures or additional incomes. Cash collections include the entire amount of cash that comes in whatever form your business receives, such as sales receipts.

Cash disbursements show where cash is spent. For example, you pay for employee payroll.

Cash excess of deficiency indicates whether your business funds are sufficient to meet all operating expenses and the costs to pursue various projects. Financing indicates earnings on investments.

The ending cash balance is how much money you have left after deducting expenses and adding all income.


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 of your accountant to examine every detail of the cash flow. Accountants are required to be more observant in tracking all components of the cash budget. Cash budgets in large organizations often rely on information from various departments to put together the master document.

For example, sales managers are responsible for tracking sales income and expenditures. Meanwhile, advertising agents must document the costs of promoting the business. These workers then have to provide the data to the accounting department, and the accountants 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. For example, a business may need to recruit new workers to meet production demand. More often than not, uncertain economic conditions often influence cash budget decisions and updates.


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