What information is needed in order to prepare a cash budget
To prepare a cash budget, the following information is typically needed:
1. Sales Forecast: Start by estimating your expected sales for the budget period. This involves analyzing past sales data, taking into account market trends, upcoming promotions, and any other factors that may impact sales.
2. Cash Inflows: Identify all the sources of cash that will be flowing into your business during the budget period. This includes not only sales revenue but also any additional income such as loans, investments, or grants.
3. Cash Outflows: Determine all the different categories of expenses your business will incur during the budget period. This includes operating expenses (rent, utilities, inventory, marketing, etc.), salaries and wages, loan repayments, taxes, and any other cash outflows.
4. Accounts Receivable: Estimate the timing and amounts of cash payments for sales made on credit. This is important to account for any delay in cash collection and understand the impact on your cash flow.
5. Accounts Payable: Consider any outstanding bills or payments due to suppliers and vendors. This will help you determine when you need to settle these payables and manage your cash outflows accordingly.
6. Seasonal Fluctuations: If your business experiences seasonal variations, analyze historical data to understand how your cash flow has been impacted in the past. Use this information to anticipate and plan for any cash flow gaps or surpluses during specific periods.
7. Opening and Closing Cash Balances: Determine your starting cash balance at the beginning of the budget period. This is typically based on your financial statements from the previous period. Also, consider the desired closing cash balance at the end of the budget period to ensure you maintain adequate liquidity.
By gathering and analyzing this information, you can create a comprehensive and accurate cash budget for your business. Remember to regularly monitor and update your cash budget throughout the budget period to reflect any actual changes in cash flow.