Cash Flow Budget: What It Is and How To Prepare One

  cash flow, business advice

cash flow budget

This is the final installment of our informational three-part series – the ultimate guide to help you lay a solid foundation in cash flow management for your wholesale business. We will be covering the importance of a cash flow budget and the steps you need to take to prepare one. 

Need a refresher? You can find links to the previous installments of this series at the end of this post.

What is a cash flow budget?

A cash flow budget is an estimation of all cash receipts and expenditures that are expected to occur during a specific time period. The budget cycle differs between businesses, but are typically tabulated monthly, quarterly or yearly.       

What is the importance of a cash flow budget for small businesses?

Small businesses have far less cash—and therefore working capital—than a multibillion-dollar Fortune 500 company. If you are an entrepreneur, a well-estimated cash flow budget would serve as a useful projection for you to determine whether or not your business has enough cash to operate. 

By preparing a detailed and accurate cash flow budget for your business that includes all your expected revenues, expenditures, and other purchases, you will be able to predict when you might have surpluses or shortages of cash. This then determines your company’s liquidity. Without sufficient liquidity, you might need to turn to loans in order to gain additional capital. However, taking on debt may not be good for your business in the long run because it is a liability.

How do I prepare a cash flow budget for my small business?

Cash flow budgeting can be difficult for many small business owners, especially first-time entrepreneurs. It requires calculation and analysis, as well as some educated guesswork. However, you can simplify the process and make it less daunting by following these steps.

If you want to prepare a cash flow budget for your business, here are three things you need to do.

1.    Outline your plans

Before you start calculating, there are a few things you have to consider. Ask yourself the right questions, which can include:

·       How much do I expect to make in sales for the month/quarter/year (depends on how far into the future you want to budget for)?

·       How much cash do I currently have on hand?

·       How much will I spend on operating costs?

Finding the right answers to these questions will be the cornerstone of your cash flow budget preparation. Determine what your goals are for the time period that you are setting your cash flow budget for, so you can align the two.

2.    Audit your inventory

This is a crucial step as it lets you know how much cash you have tied up in inventory. To make auditing your inventory much quicker and easier, take advantage of high-quality inventory management software.

Proper management of your inventory will help you set a realistic cash flow budget and avoid future cash flow problems by providing you with real-time data on your inventory, thereby allowing you to accurately forecast your production needs and meet consumer demand. 

Inventory management software will help you streamline and automate your inventory processes, and remove the hassle of manual work. By using the right inventory management tools, you will be able to gain greater control over your inventory because you can easily track items and access real-time inventory data at any moment.

3.    Proceed with planning your cash flow budget

After you’ve outlined your plans, set your goals, and completed an audit of your inventory, you can begin preparing your cash flow budget. This involves the following steps:

1. Calculate total cash inflows

  • Sales forecast

The first step is to analyze your profit and loss statement in order to make an accurate sales forecast. Identify trends and patterns in sales by studying sales from the same time period your budget is for. For example, if your budget is for the months of January, February, and March, then you should take a look at previous sales for those same months for a better projection. 

When predicting future sales figures, you also need to take into account the impact of seasonality. For instance, a retailer of jackets, coats, and other similar items might have high sales in winter, but they can’t be expected to have the same level of sales during summer.

  • Accounts receivable

Aside from expected sales, you also need to factor all accounts receivables into your calculations. Prepare a list of your receivables and group them according to their credit terms, which can be 30, 60, or 90 days. By separating your receivables in this way, you can see how the timing of collections will affect your projections.

2. Calculate total cash outflows

The next step is to get an accurate estimate of all your cash outflows (expenses). Expenses will obviously differ from business to business, but they can generally be divided into three categories:   

  • Overhead expenses

These are all the costs required for you to operate your business. They can include employee salaries, warehousing fees, maintenance costs, and utilities. These are generally the same every month, so estimating your business’s overhead expenses should be relatively simple. 

  • Variable expenses

Unlike overhead expenses, these are not fixed because they tend to be affected by other external factors. These include raw materials, which are dictated by the state of the market; and production costs, which vary in relation to production volume. 

  • Miscellaneous expenses 

These are expenses that you don’t incur on a regular basis such as the purchase of new machinery or equipment or the payment of insurance premiums. Although they don’t fit the bill for either overhead expenses or variable expenses, they are still significant enough to be included in your cash flow budget.

4.    Prepare your actual budget

What does an actual cash flow budget look like?
To give you a better idea of how to budget for your own business, take a look at this cash flow budget example.             

cash flow budget

Based on the cash flow budget example above, XYZ expects a significant increase in accounts receivable collection for the month of December, so they decide to include expenses for new equipment in the budget. Even with the $10,000 spent on new equipment, they are still able to enjoy a positive net cash flow for December. In the above example, XYZ enterprise is able to generate sufficient sales numbers and enjoy a positive cash flow for the months of October and November. The net cash flow at the end of a month is then used as the beginning cash flow for the next month. 


Cash flow budgeting is a much simpler process with Sweet’s high-quality inventory management, sales, and payment software into your cash flow strategies. These tools can help you automate your inventory auditing, sales, and collection processes so that you can avoid any cash flow problems.

To make calculating your cash inflows and outflows much easier, Sweet’s technology is also integrated with accounting software such as QuickBooks and payment software like Shopify and Stripe. By removing the hassle of manual calculations, you can significantly reduce errors and prepare a highly accurate cash flow budget.

To find out how Sweet can help you, request a free demo today.

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Need a refresher common cash flow problems faced by wholesale businesses and recommended cash flow management strategies?