Cash budgeting

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business builder 5

how to prepare a cash budget
zions business resource center

zions business resource center

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how to prepare a cash budget
At its most basic level, a budget is a plan for owners and managers to achieve their goals for the company during a specific time period. In this business builder you will learn the fundamental concepts of cash budgets and how to evaluate your budget ona month-to-month basis.
What You Should Know Before Getting Started
• The Purpose of a Cash Budget • Why Prepare a Cash Budget?

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How to Create a Cash Budget
• Time Period • Desired Cash Position • Estimated Sales and Expenses • Cash Flow Budget Worksheet

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How to Analyze a Cash Budget Conclusion Checklist Resources

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how to prepare a cash budget

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what to expectThis Business Builder will introduce you to the fundamental concepts of cash budgets and outline the steps necessary for preparing a cash budget for your business. It will also show you how to evaluate your budget on a month-to-month basis. This Business Builder assumes that an income statement and a balance sheet have been prepared for your business. Information from these financial statements arean integral part of creating a budget. Without that information, this Business Builder may not be as helpful as it could be.

what you should know before getting started
The Purpose of a Cash Budget
At its most basic level, a budget is a plan. It is a plan for owners and managers to achieve their goals for the company during a specific time period.
The preparation of a cash budget is an importantmanagement task. While some small businesses may be able to survive for a time without budgeting, savvy business owners will realize its importance. A cash budget can protect a company from being unprepared for seasonal fluctuations in cash flow or prepare a company to take advantage of unexpected quantity discounts from suppliers. While there are other types of budgets that can be prepared, suchas projected or pro forma financial statements, a cash budget is a management plan for the most important factor of a company’s viability— its cash position. A company’s cash position determines how suppliers will be paid, how a banker will respond to a loan request, how fast a company can grow, as well as directly influencing dividends, increases to owner’s equity, and profitability.

A cashbudget is a management plan for the most important factor of a company’s viability— its cash position.

zions business resource center

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Many small businesses find it helpful to prepare monthly cash budgets and to analyze any variances between the budgeted and actual amounts on a monthly basis. This enables small business owners and managers to stay on top of any unexpected cash uses. The creationof a cash budget requires you to make estimates (or best guesses) about many different aspects of your company and the environment in which it operates. Future sales will be contingent on many things, such as competition, the local economic climate, and your own internal operations and capacity. In addition, after sales are estimated, potential costs must also be derived. The important thing tokeep in mind while arriving at these figures is that past experience is important, but so is intuition. The estimates you will need to develop must be based in reality and yet contain a dose of creativity and, if warranted, optimism. There are budgets, other than the cash budget, that are important for your company. However, the cash budget is a good first step if you are new to budgeting. A cashbudget cannot be created in a vacuum. Before and during the budgeting process, business owners must consult with line managers, suppliers, and key personnel to make the best guess possible about the relationship between the goals for the period and their effect on cash receipts and cash expenditures.

Why Prepare a Cash Budget?
A cash budget is important for a variety of reasons. For one, it...
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