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Understanding cash budgets
The cash budget for a small business is the only budget that is needed.However, if your business is larger, then the cash budget is the link between your master budget and all of the individual budgets for different departments within your company or corporation.The cash budget is an overview and overall picture of how money is going to be moved to your business bank account and from your business bank account.Then your cash budget will end up being your proposed cash flow for the particular period marked out by the specific budget.
You can and should use the information that is on your cash budget in order to create your forecasted profit and loss account.You can use a forecasted balance sheet in order to demonstrate what the financial position of your business or corporation will be at the end of the period covered by the budget.Anybody that you go to in order to ask for greater funding will want these projected budgets; however, these projected cash budgets will also be an important and central tool for you as a manager of a small business or corporation when you are planning for the future of your company. The best way to create your cash budget and to check it against other budgets is to create simple spreadsheets using an easy-to-use program such as Excel.Using a spreadsheet program on your computer will allow you to change any figures as the needs arise.This is called flexible budgeting, and it is a benefit because then your budget will always be able to reflect what is occurring in your business.By using a computer spreadsheet, you don't have to redo your entire budget if there is an unexpected increase in the demand for your products and/or services.Also, because the computer can calculate figures for you, using Excel or another spreadsheet program can greatly assist you in reducing any human errors that quite often occur in manual calculations of figures. No matter how small your business is, you need to know how to prepare a cash budget-and you need to make sure that you prepare that cash budget on a regular basis.Having a cash budget will help you be prepared for any fluctuations that occur seasonally in your supplies, in your cash flow, or in a potential discounting from your major suppliers.The cash budget that you prepare will be the primary document and plan that will help you determine whether or not your company is financially viable during different periods of time determined by your budget.Your cash budget will help you determine how you are going to pay your suppliers, how quickly you can expand your company, whether or not your business loan will be approved and you can get needed funding,and will determine dividends, the increases in equity, and the profitability of your company. |
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