Cash Budget
Planning cash flows.
Why This Matters
A business can be profitable on paper and bankrupt in reality. Revenue is earned when you make the sale. Cash arrives when the customer actually pays. Expenses are recognized when incurred. Cash leaves when the invoice is due. These timing differences can create dangerous gaps — periods when the business is profitable but can't make payroll.
The Cash Budget solves this by mapping every cash inflow and outflow period by period, revealing exactly when the business will have surplus cash and when it will run short. It converts the abstract plan of the master budget into a concrete picture of the bank account over time.
The Cash Budget is the most operationally critical budget the business prepares. Revenue budgets and profit forecasts are important — but a company that can't meet its cash obligations on time is insolvent, regardless of what the income statement says.
The Cash Budget Structure
CASH BUDGET FORMAT
Beginning Cash Balance
+ Cash Receipts (collections, other income)
= Total Cash Available
− Cash Disbursements (materials, labor, overhead,
SG&A, capex, debt, taxes)
= Cash Before Financing
± Financing (borrowing / repayments / interest)
= Ending Cash Balance
Check: Ending Balance ≥ Minimum Required Balance
Cash Budget Calculator
Pre-filled with ABC Coffee Q1 2027. Enter beginning cash, receipts, disbursements, and financing to compute ending balance. Flags when ending cash falls below the minimum required balance.
Total Cash Available
$54,126
Beg + Receipts
Cash Before Financing
$12,026
Available − Disbursements
Ending Cash Balance
$12,026
± Financing
vs. Minimum ($8,000)
✓ Above Minimum
+$4,026 surplus
Cash Budget Flow
Beginning Cash: $11,500
+ Cash Receipts: $42,626
= Total Available: $54,126
− Disbursements: ($42,100)
= Cash Before Financing: $12,026
Ending Cash: $12,026
Cash Collections Schedule
The first step is translating the Sales Budget into actual cash inflows, adjusted for the timing of customer payments.
| Collections | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| Sales (budget) | $42,625 | $55,875 | $60,000 | $45,313 |
| From current Q (95%) | $40,494 | $53,081 | $57,000 | $43,047 |
| From prior Q (5%) | $2,132 | $2,131 | $2,794 | $3,000 |
| Total Collections | $42,626 | $55,212 | $59,794 | $46,047 |
Policy: 95% collected in same quarter; 5% in following quarter.
Cash Disbursements Schedule
Cash disbursements come from all the operating budgets.
Direct Materials Payments
DM purchases: Q1 $17,000 | Q2 $20,500 | Q3 $21,500 | Q4 $15,168. Payment: 80% in quarter purchased; 20% following.
Q1 Paid
$16,000
Q2 Paid
$19,800
Q3 Paid
$21,300
Q4 Paid
$16,434
Direct Labor: Q1 $4,900 | Q2 $5,900 | Q3 $6,700 | Q4 $3,945
Cash Overhead (ex. $2,000 depreciation): Q1 $8,500 | Q2 $8,900 | Q3 $9,500 | Q4 $8,477
SG&A (cash only): Q1 $6,500 | Q2 $7,200 | Q3 $7,600 | Q4 $7,075
Capex: Q1 $4,800 (espresso) | Q3 $2,200 (refrigerator)
Loan payments: $600/qtr | Taxes: Q1 $800 → Q4 $479 true-up
Full Cash Budget: ABC Coffee Shop 2027
| Line Item | Q1 | Q2 | Q3 | Q4 | Annual |
|---|---|---|---|---|---|
| Beginning Cash | $11,500 | $12,026 | $15,338 | $25,332 | $11,500 |
| Collections | $42,626 | $55,212 | $59,794 | $46,047 | $203,679 |
| Total Available | $54,126 | $67,238 | $75,132 | $71,379 | — |
| Total Disbursements | $42,100 | $43,500 | $49,100 | $37,010 | $171,710 |
| Cash Before Financing | $12,026 | $23,738 | $26,032 | $34,369 | — |
| Ending Cash | $12,026 | $15,338 | $25,332 | $33,575 | — |
ABC Coffee 2027 — Ending Cash by Quarter
ABC never falls below the $8,000 minimum. The plan is executable without new borrowing — surplus grows each quarter.
Reading the Cash Budget
1. Liquidity Confirmation
ABC never falls below the $8,000 minimum. The plan is executable without new borrowing.
2. Surplus Cash Identification
By Q4, ending cash is $33,575 — capacity to pay down debt, invest, or distribute to owner.
3. Capex Timing
Q1 espresso machine ($4,800) is the biggest Q1 drag. Plan the purchase or ensure adequate starting balance.
4. Working Capital Needs
Collections lag sales; DM payments lag purchases. In long AR cycles, this gap requires significant funding.
The Minimum Cash Balance
MINIMUM CASH BALANCE = Buffer for:
1. Unexpected expenses or slow collections
2. Compensating bank balance requirements
3. Operational confidence — not operating at zero cash
If ending cash < minimum → must borrow
If ending cash >> minimum → deploy surplus (debt, invest, distribute)
When the Cash Budget Reveals Problems Early
Scenario: New competitor opens in Q2 — sales fall 20% in Q2 and Q3.
Q2 revised cash before financing: ~$4,826
Minimum balance: $8,000
SHORTFALL: $3,174 → Must borrow
If known in April:
- Apply for $5,000 credit line early
- Cut variable SG&A in Q2
- Delay Q3 refrigerator to Q4
If discovered in late June:
- Emergency credit (weeks; may be denied)
- Supplier payments delayed
- Payroll risk
The Cash Budget converts "sales might be weak" into "I need $3,174 of cash by June 30 — here's my plan."
Budgeting Module Track
Cash Budget is module 4 of 5 in the Budgeting section (#88–92):
| Module | Core Concept | # |
|---|---|---|
| Budgeting Basics | Four purposes; process; top-down vs. bottom-up; slack | #88 |
| Master Budget | Integrated system: operating + financial budgets | #89 |
| Sales Budget | Revenue forecast; seasonality; collection timing | #90 |
| Cash Budget ← You are here | Cash collections; disbursements; financing needs | #91 |
| Flexible vs. Static Budget | Volume variance vs. efficiency variance separation | #92 |
Common Mistakes
Mistake 1: Confusing Profit with Cash
❌ Wrong
"We're profitable, so we don't need a cash budget."
✅ Right
Run the cash budget quarterly at minimum (monthly for tight cash positions or volatile revenue).
Mistake 2: Forgetting Non-Cash Items
❌ Wrong
Using income statement expense totals directly in the cash budget.
✅ Right
Remove depreciation and amortization. Use actual payment dates, not accrual dates.
Key Takeaway
The Cash Budget maps every cash inflow and outflow period by period, starting from the collections schedule (Sales Budget adjusted for payment timing) and incorporating disbursements for materials, labor, overhead, SG&A, capital expenditures, debt service, and taxes. If the ending balance drops below the minimum required balance, the difference must be financed; surpluses above the minimum should be intentionally deployed. The Cash Budget is the most operationally critical budget because it reveals the timing gaps between profitability and liquidity — making problems visible far enough in advance to act on them.
Test Your Understanding
Collections timing, borrowing shortfall, ABC Q1 liquidity, and non-cash items — check your answers below.
Question 1: Monthly sales = $100,000. 70% collected in the month of sale; 30% in the following month. What is collected in February from February sales?
Question 2: Beginning cash = $5,000. Total receipts = $80,000. Total disbursements = $83,000. Minimum balance = $6,000. How much must be borrowed?
Question 3: ABC Coffee 2027 Q1: collections $42,626, disbursements $42,100. Beginning cash $11,500. Is borrowing needed if minimum balance is $8,000?
Question 4: True or False: Depreciation expense should be included in the cash budget disbursements at its full income statement amount.
Ready to Practice?
Build quarterly cash budgets, model collection and disbursement schedules, and test minimum balance scenarios in the Practice Lab.
Try the Practice LabWhat's Next?
Flexible vs. Static Budget — How to make budget variances meaningful by adjusting the budget for actual activity levels. A fixed budget compared to different volume can't tell you whether cost control was good or bad.
Flexible vs. Static Budget
Adjusting for activity levels
Sales Budget
The starting point for all budgets