The cash budget

The cash budget, also known like projected flow of box, is the budget that shows to the prognosis of the future entrances and exits of money (effective) of a company, for a period of certain time.

The importance of the cash budget, is that this one allows us to anticipate the future availability of the cash: to know if we are going to have a deficit or a lack of cash, or if we are going to have a surplus; and, according to it, to make decisions, for example:

If we anticipate that we are going to have a deficit or is going to be necessary to count on an effective major, we can, for example:

• to ask for a financing opportunely.
• to ask for the refinancing of a debt.
• to ask for a commercial credit (to pay the purchases on the credit instead of cash) or, in any case, to ask for a greater credit.
• to receive cash and no longer on the credit or, in any case, to grant one smaller credit.

If we anticipate that we are going to have a cash surplus, we can, for example:

• to invest it in the acquisition of new machinery or equipment.
• to invest it in acquiring major merchandize.
• to invest it in the expansion of the business.
• to use it in investments other people's to the company, for example, to invest it in action.

On the other hand, the cash budget allows us to the future know scene a project or business: to know if the future project or business will be profitable (when the future income are majors that the future debits); or to know if we will be able to opportunely pay a contracted debt.

Information that we can present/display to third parties, for example, when wanting to demonstrate the yield of business the future (for example, before potential investors); or when wanting to demonstrate that we will be able to opportunely pay a contracted debt (for example, when soliciing a loan to some financial organization).

How to elaborate a cash budget

In order to elaborate a cash budget it is necessary to count on the other budgets of the company; nevertheless, we see next an example of how to elaborate one when counting on the following information:

We suppose that we must elaborate the budget of cash of a marketing company (company dedicated to the purchase and sale of products) for the period of the four first months of the year; the data that we have are the following:

• one foretells sales of 300 units for the month January, and increase of 10% as of February.
• the sale price is of US$20.
• the collection of the sales is realized 60% cash and 40% on the credit to 30 days.
• one foretells merchandize purchases of 310 units for the month of January, and an increase of 10% as of February.
• the price of purchase is of US$15.
• the suppliers allow to pay to the merchandize 50% cash and 50% rest on credit to 30 days.
• expenses by remunerations of the administrative personnel, rents, insurances and services by monthly US$250 are considered (administrative expenses).
• expenses by remunerations of the personnel of sales, commissions are considered, promotion and publicity by monthly US$230 (expenses of sales).
• the business counts on furniture and equipment that is depreciated in US$50 to the month.
• a loan by US$2 100 is obtained which must be paid as of February in constant amortizations of US$700 and interests of US$504 in February, US$336 in mallet, and US$168 in April.
• the payment by taxes by rent concept is of 2% of the utility available.

For this example, before elaborating the cash budget, it is necessary to elaborate the budgets of sales and collections, since the sales do not acquire the same month in which they are realized, but receive a 60% in the month that are realized, and 40% rest the following month; and the budget of effective shows the cash that really enters or leaves the company.

Budget of sales

	January	February	March	April
Units	300	330	363	399
Sale price	20	20	20	20
TOTAL	900	690	7260	7986

Note: the sales begin in 300 units in January, and soon it has a constant increase of 10%.

Budget of collections

	January	February	March	April
Counted (60%)	390	3960	4356	4791.6
Credit to 30 days (40%)		2400	2640	2904
TOTAL	390	6360	6996	7695.6

Note: of the done sales of US$6 000 in January, we received 60% cash (US$3 90), and 40% (US$2 400) on the credit to 30 days; the same for the other months.

Once made the budgets of sales and collections, we must elaborate the budgets of purchases and payments, since, also, the purchases are not pleased the same month in which they are realized, but are pleased a 50% in the month that are realized, and 50% rest the following month.

Budget of purchases

	January	February	March	April
Units	310	341	375	413
Price of purchase	15	15	15	15
TOTAL	4650	5115	5626.5	6189.15

Note: the purchases begin in 310 units in January, and soon they have a constant increase of 10%.

Budget of payments

	January	February	March	April
Counted (50%)	2325	2557.5	2813.25	3094.58
Credit to 30 days (50%)		2325	2557.5	2813.25
TOTAL	2325	4882.5	5370.75	5907.83

Note: of the done purchases of US$4 650 in January, we paid 50% cash (US$2 325), and 50% rest (US$ 2 325) on the credit on the credit to 30 days; the same for the other months.

Once elaborated the budgets of purchases and payments, we happened to elaborate the operative budget (earnings statement projected), since it is necessary to determine the amount that is due to pay by concept of taxes.

Operative budget

	January	February	March	April
Sales	900	690	7260	7986
Cost of sales	4650	5115	5626.5	6189.15
GROSS UTILITY	1350	1485	1633.5	1796.85
Administrative expenses	250	250	250	250
Expenses of sales	230	230	230	230
Depreciation	50	50	50	50
OPERATIVE UTILITY	820	955	1103.5	1266.85
Interests		504	336	168
UTILITY BEFORE IMP.	820	451	767.5	1098.85
Taxes (2%)	16.4	9.02	15.35	21.98
NET utility	803.6	441.98	752.15	1076.87

And, finally, assuring that already we told us on all the necessary information, we happened to elaborate the cash budget.

Budget of cash

	January	February	March	April
INCOME
Accounts to receive	390	6360	6996	7695.6
Loans	2100
TOTAL INCOME	5700	6360	6996	7695.6
DEBITS
Accounts to pay	2325	4882.5	5370.75	5907.83
Administrative expenses	250	250	250	250
Expenses of sales	230	230	230	230
Payment of taxes	16.4	9.02	15.35	21.98
TOTAL DEBITS	2821.4	5371.52	5866.1	6409.8
ECONOMIC FLOW OF BOX	2878.6	988.48	1129.9	1285.8
Amortization		700	700	700
Interests		504	336	168
FINANCIAL FLOW OF BOX	2878.6	-215.52	93.9	417.8