What is a cash flow budget?

A cash flow budget, also referred to as cash flow forecast is a tool used to forecast a business’s future financial stature. A cash flow budget shows an overview of the inflow and outflow of funds over a specified period. A cash flow budget helps businesses estimate if there is enough liquidity to sustain business operations within a given period, both in the long term and short term.

Cash flow is an essential aspect of every business. However, cash flow projection is also vital for the business plan. To understand the business’s finances, you must calculate the income and expenses, both past and current. This meticulous process should indicate the business’s budget and how long it will last at the current pace. Without a cash flow budget, it is hard for companies to understand their financial position and whether the business is profitable or not.

Cash flow budgeting does not give a precise figure but allows businesses to make informed guesses. You can estimate the cash flow within a specified accounting period, monthly, annually, quarterly, or even weekly. It also considers factors such as inventory, equipment, and the business’s debts in calculating the cash flow.

How to Create a Cash Flow Budget?

It is hard to estimate the cash flow, so creating a cash flow budget is essential.

To create a cash flow budget, you should:

1. Select the most appropriate timeframe for the cash flow budget calculation, e.g., weekly, biweekly, monthly, quarterly, or annually.

2. Estimate the total income within that time frame. Categorize it in terms of payment terms and source.

3. Estimate the total expenses within that period, categorized by source and timing.

4. Subtract the expenses from the income. Determine the deficit or the surplus within that time frame.

If there is a deficit, find ways of fixing it, such as finding other avenues of income and cutting down some expenses. If there is a surplus, the business is doing well, and it can re-invest for growth.

What Should Be in the Cash Flow Budget

What figures should be included in a cash flow budget? The variables to include differ from one business to another and the stage in the business life cycle.

●       Sales forecast

●       Loan payments

●       Tax payments or refunds

●       Operational costs

●       Accounts payable

●       Accounts receivables

Short-term cash flow budgets should include payrolls, rent, utility bills, investments, and operating expenses. Long-term cash budgets should have long-term investments, capital expenditure on projects, and taxes.


Cash flow budgeting enables businesses to assess their performance and whether they have enough cash flow to maintain operations over a specified period. If the cash flow budget indicates a surplus, the business can explore new ventures to expand its operations, thus bringing growth. However, if the cash flow budget shows deficiencies, the company can cut down on some expenses to maintain profitability.


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