Cash budget
In one sentenceAn estimate of cash receipts and payments month by month that shows when a cash shortage or surplus is expected, before it happens.
Simply put
Your business can be profitable and still find no cash to pay salaries, because customers pay late. A cash budget tracks the movement of cash, not profit.
You prepare it for each month: the opening balance, plus what you expect to receive, minus what you will pay. If a shortage appears, you prepare for it early: faster collection, delaying a purchase, or short-term financing.
Worked example
A restaurant starts the month with a balance of 40,000 SAR, expects receipts of 150,000 SAR and payments of 175,000 SAR, and wants its balance never to fall below 30,000 SAR.
Opening balance for the month40,000 SAR
Expected receipts150,000 SAR
Expected payments175,000 SAR
Expected closing balance40,000 + 150,000 − 175,000 = 15,000 SAR
Shortfall below the minimum = 30,000 − 15,00015,000 SAR
Formula: Opening balance + expected receipts − expected payments
Don't confuse it with
Statement of cash flowsThe statement shows what actually happened to cash in a past period, while the cash budget is an estimate of what will happen.