A cash flow budget shows how much money you expect to come into your business and go out of your business in a period. This shows the payment ability of your business.
There are two budgets that all companies should have: income budget—also called profit and loss budget—and a cash flow budget.
An income budget shows whether the company is running with a profit or loss across a period, while a cash flow budget shows whether the company will have enough money to cover the actual costs in that period.
Combining these two budgets gives you a good starting point to manage your business’ finances.
How to set up a cash flow budget
The calculation is easy:
Cash flow = estimated inflows – estimated outflows
If the result is positive, you’ve got extra money on hand which could be used for investments or to set aside as a safety net for unexpected expenses. If the result is negative, it means your funds aren’t sufficient to cover your upcoming bills, and that’s a sign you need to take quick action to address this, such as cutting costs with free invoice software
Download a free template to get started.
What happens if the calculation is negative?
If the cash flow budget shows that your company has negative cash flow, you should be making some changes. This can include:
- Expense optimisation: Evaluate and potentially reduce costs by renegotiating contracts with suppliers or adjusting inventory levels.
- Pricing review: Examine the pricing of your goods or services—does it match current market trends and meet customer expectations? Are you making enough to support your business?
- Invoice factoring: Selling outstanding invoices to banks or third-party companies. They pay you the invoice sum immediately, minus a small fee. This can be a good way to improve your cash flow.