Preparing a cash-flow budget
A cash-flow budget records the cash you expect to receive and pay out over a period of
time, so it:
• helps you understand and plan for likely peaks and troughs in your cash flow
• gives you important benchmarks/indicators of what you want to achieve
• allows you to make informed decisions when planning additional expenditure
• shows your bank you’re managing your cash flow, and whether you can afford
additional borrowings.

There are various factors to consider when preparing your cash-flow budget, including
the time period. This depends on the size of your business, but it’s common to prepare a
12-month cash-flow budget. When you’re starting up, consider preparing a 90-day cash
flow budget.
Developing key data
These are numbers you’ll add to your cash-flow budget, including:
• sales
forecast
• likely cash receipts, for example tax refunds, grants and loans
• expenses
forecast
• likely cash payments, for example tax payments and loan repayments.
Developing a format
Set up a worksheet that includes all your receipt and payment transactions, with
appropriate columns for the number of months you’re budgeting for. The procedure for
working out your cash-flow budget is:
1. take your beginning cash balance
2. add your budgeted cash inflows
3. deduct your budgeted cash outflows.

The result will be your budgeted cash balance.
Improve your cash flow
If it feels like your cash only flows in one direction – out - these cash management
basics can help. Even without a cash-flow budget, they can work to your advantage.

Accelerate the flow of cash from your customers
Credit policy
Review a customer’s credit history before you extend credit on a
sale.

Consider whether you can reduce your trading terms.

Ensure you follow up overdue customer payments swiftly and
effectively.
Billing procedure
Ensure your invoices show all the information your customers need.
Set them out so they’re easy to pay.

Issue invoices promptly

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Deposits
Consider customer deposits prior to sale.
Shipping and
Reduce the time from customer order to delivery.
handling

Borrowings
Consider factoring your customer invoices to speed up the
collection process.



Delay your cash outflows
Your suppliers’
Talk to suppliers to obtain maximum credit terms when setting up a
credit policies
trade account.
Credit cards
Use your credit card to take advantage of interest-free periods and
delay your payment.
Delay payment
If you have a cash shortage, contact your supplier and ask for
additional time to pay. You may be surprised at the support you
receive.


Other ways to help your cash flow
Stock on hand
Holding excessive stock keeps vital cash out of the business.
Review your stock levels to ensure you hold stock for the least
amount of time between buying and selling.

Accelerate your cash flow with a special promotion.

Review slow-moving stock to see if you can either return it to your
supplier for a credit, or sell it at a discount to create cash flow.
Profit margins
Review your profit margin to ensure you get the best profit.

Review your prices and consider an increase.

Review your suppliers’ prices to ensure competitiveness.
Overheads
Review your overheads to identify any costs you can reduce, or
eliminate.
Borrowings
Get additional funding from your bank, or credit institution. Your
cash-flow budget should help identify in advance what your future
cash needs will be.
Owners’
Owners can contribute additional capital to the business.
contributions

Owners’ salaries
Reduce owners’ salaries or drawings from the business.
Assets
Review your other business assets to identify non-core assets you
can sell to inject cash into your business.

Other options
If you’re still having trouble with your cash flow, consider the following.

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Review your cash-flow budget
• Review your actual cash flow for one month and compare it with your cash-flow
budget. Identify any gaps between the results you achieved in the month under
review against the budget you developed for the month.
• Develop strategies to manage any areas of concern.
• Review your actual cash flow for the three months prior to the budget period so
you understand your cash flow better. Review your cash flow budget to check
your expectations are reasonable.
Get advice
Your accountant should be able to help you prepare a cash-flow budget. If you’re the
leader of a team, you may find it beneficial to work through any cash-flow problems, or
opportunities with your team. Consider whether you need assistance from your
accountant in managing your relationship with your creditors.
What comes next
Prepare your own cash-flow budget. Use it as a working document to identify
weaknesses and opportunities. It will be invaluable in helping you measure, monitor and
manage your money.

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Document Outline

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