Cash Budgeting

Cash Budgeting

1. Businesses need cash

   • To pay wages
     • No workers means nothing produced
   • To buy stock
     • No stock means nothing to sell
   • To pay fixed costs
     • Mortgage
     • Rent
     • Electricity
     • Taxes

2. Cash Flow Problems

   • Too much money tied up in stock
   • Owner takes out too much money
   • Customers take too long to pay
   • Purchasing fixed assets
   • Increase in costs/expenses
   • Not enough sales

3. To resolve Cash Flow Problems

   • Offer discount for prompt payment
   • Offer discount to customers
   • Sell any unused assets
   • Arrange an overdraft/loan
   • Cut costs
   • Reduce waste

4. Interpreting a Cash Budget

   • Look for trends in Sales - going down
   • Look for trends in Purchases - going up
   • Look for trends in wages - going up
   • Look for large items of expenditure eg vehicles/machinery
   • Look for decreasing monthly balance
   • Look for decreasing total income

5. Benefits of cash budgets

   • To see if there's excess cash
   • To help decision making
   • To show if extra finance is required
   • To help control expenses