What is a cash flow budget

A cash flow budget is a budget that shows the estimated inflows and outflows for the upcoming period, which will indicate the payment ability of your company.


If there are two budgets that all companies should have, it is an income budget and a cash flow budget.

While an income budget reflects financial outcomes after a period, a cash flow budget focuses on assessing whether a company possesses the funds to cover its actual costs. The combination of both budgets equips businesses with a robust financial management framework.

How to set up a cash flow budget

Creating a cash flow budget involves a straightforward calculation:

Cash Reserves = Estimated Inflows – Estimated Outflows

This formula reveals the budgeted cash flow result, indicating the surplus or deficit for the period. A surplus can be utilized for investments or creating a financial buffer for unforeseen expenses. Conversely, a deficit signals insufficient funds to cover necessary payments, necessitating proactive measures.

What happens with a cash flow deficit?

If the cash flow budget shows that your company has a cash flow deficit, you should implement measures to strengthen your cash flow situation.

Strategies to improve cash flow include:

  1. Expense optimisation: Evaluate and potentially reduce costs by renegotiating contracts with suppliers or adjusting inventory levels.
  2. Pricing review: Assess the pricing of goods or services to ensure it aligns with market trends and customer expectations.
  3. Invoice factoring: Consider factoring invoices to mitigate issues related to late payments. For a nominal fee, this option provides immediate access to funds upon invoice issuance.