A cash budget also allows you to evaluate and plan for your capital needs. The cash budget will help you assess whether there are periods during your operations cycle when you might need short-term borrowing. It will also help you assess any long-term borrowing needs. Basically, a cash budget is a planning tool for management decisions. Another example were cash budgeting is require, a online Instant Life Insurance rates or life insurance quotes online company, need to have more cash inflow at the time of financial year ending as people need to save in term life insurance for tax purpose.

How To Create A Cash Budget

There are three main components necessary for creating a cash budget. They are:

• Time period
• Desired cash position
• Estimated sales and expenses

 We will discuss on each components in our next post.

Ref: cash budget

Watch out for The creation of 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, not the least of which is 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 to keep 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.

Acash Budget 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.

The preparation of a cash budget is an important management 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. For example, a blinds company who are selling vertical blinds and roller shades online, at the time of Christmas they need more cash flow to reach more demand because of Christmas. Same way for Instant life insurance rates company or life insurance quotes online, financial year ending is time when they need to plan their cash budget.

While there are other types of budgets that can be prepared, such as 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.

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. Like spring vacation or summer vacation is time for motels in California or California motels company to plan their cash budget because these are the time when they have maximum customers.

Ref: cash budget

What You Should Know Before Getting Started

• Why Prepare a Cash Budget?

How to Create a Cash Budget

• Time Period
• Desired Cash Position
• Estimated Sales and Expenses
• Blank Worksheet

How to Analyze a Cash Budget

Conclusion

Checklist

Resources

What To Expect

This 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 is an integral part of creating a budget. Without this information, this Business Builder may not be as helpful as it could be. 

Ref: cash budget

It is possible to keep a cash budget in a simple accounting ledger, or design one using spreadsheet software. Most accounting software programs are also equipped with a simple cash budget feature that will gather data from within the database and provide a quick snapshot of the period under consideration. For persons who do not need a professional level accounting database but do not feel competent to design a cash budget template using a spreadsheet, there are several free downloadable cash budget programs available.

Ref: Cash Budget

Part of the genius of a cash budget is the simplicity of the approach. Often, it is possible to employ the principle of a cash budget by using a basic spreadsheet. Creating columns that make it possible to record basic information, it is possible to tell at a glance how much money came in for the period, and how much went out. This is accomplished by recording each cash receipt and cash disbursement on the spreadsheet. Often, the date, amount, and a brief description of the transaction are all that is necessary.

Ref: Cash Budget

Question: My wife and I have a $100,000 balance on our fixed-rate 5.5% mortgage. We also have $80,000 in mutual funds in a taxable account that’s down 50% this year. Should we sell the funds to pay off the loan? Then we wouldn’t have to worry about losing our house if we got laid off. –George P., Hopewell Junction, N.Y.

Answer: I salute you for trying to guard against a financial setback before it occurs. But your proposed solution probably isn’t your best choice. First, you’ll likely earn a better return in the market, says San Diego financial adviser Jean Sinclair. Assuming you itemize deductions, your 5.5% mortgage costs you less than 4% after tax. Although stocks have been rotten lately, from today’s depressed levels you ought to easily beat 4% over the long run.

The second reason not to pay off the mortgage: If indeed you lose your job — and you run though your cash cushion — it’s easier to sell stocks than to pull the money out of your house.

A better way to address unemployment fears, says Sinclair, is to take a hard look at your spending. If one of you were to be laid off, what could you cut back on? Doing this exercise now, before any emergency pops up, can help keep worries under control.

Source: cnnmoney

The Bush administration appears to want an agreement with the automakers before Dec. 25. It was unclear, however, when all of the particulars might be worked out, said the senior official, who spoke on the condition of anonymity because of the delicate nature of the negotiations.

But the official indicated that the administration was inclined to do more than just keep G.M. and Chrysler alive until President-elect Barack Obama takes office, saying, “Giving them enough money to limp along doesn’t solve anything.”

In the negotiations, the Treasury secretary, Henry M. Paulson Jr., is effectively taking on the role of “auto czar,” which was envisioned in the carmakers rescue bill written by the White House and Congressional Democrats and approved by the House but blocked by Senate Republicans.

In the days since the White House said it would step in to prevent the collapse of G.M. and Chrysler, Treasury officials have been poring over detailed financial data in a meticulous exercise that one G.M. executive likened to “putting on the aqualung” and diving deep into the companies’ books.

G.M. officials said that the company’s chief financial officer, Ray Young, and a team of aides had provided the Treasury with a vast sheaf of documents including supplier contracts and payment schedules, production plans, employee payrolls, debt obligations, interest payments and even utility bills.

ref: cnbc

we talk more on cash budget management in next post.