Legal Definitions - cash budget

A cash budget is a detailed financial plan that tracks how much money a business expects to have, receive, and spend over a specific future period. It outlines the starting cash balance, forecasts all anticipated cash inflows (receipts), projects all expected cash outflows (disbursements), and calculates the resulting ending cash balance for each period (e.g., week, month, or quarter). Essentially, it's a roadmap for a company's cash flow, helping management understand its liquidity and plan for future financial needs or surpluses.

• Example 1: Small Business Expansion

  A popular local bakery, "Sweet Delights," wants to open a second branch in a new neighborhood next year. The bakery's owner creates a cash budget for the next 12 months. This budget details the current cash on hand, projected sales revenue from both locations (cash receipts), and anticipated costs for rent, ingredients, staff wages, and new equipment purchases for the second branch (cash disbursements). By doing this, the owner can see if they will have enough cash to cover the expansion costs, when they might need a loan, or if they'll have surplus cash at certain times.

• Example 2: Seasonal Business Management

  "Green Thumb Landscaping" experiences high revenue during spring and summer but very low revenue during fall and winter. To manage these fluctuations, Green Thumb's owner prepares a quarterly cash budget. This budget projects the significant cash inflows from landscaping contracts in warmer months and the much smaller inflows during colder months. It also accounts for consistent fixed expenses like equipment maintenance and administrative salaries (cash disbursements) throughout the year. The cash budget helps the owner ensure they save enough cash during peak seasons to cover expenses and maintain operations during the lean off-season, preventing a cash shortfall.

• Example 3: Tech Startup Funding

  "InnovateNow," a new software startup, has just secured initial seed funding and needs to manage its burn rate (how quickly it spends its cash). InnovateNow's finance team develops a monthly cash budget for the next 18 months. This budget starts with the initial investment as the opening cash balance. It then meticulously forecasts cash receipts from potential early customer subscriptions and projects all cash disbursements, including salaries for developers, marketing expenses, cloud server costs, and office rent. This detailed budget allows the startup to monitor its cash position closely, ensuring the seed funding lasts as long as possible before needing to raise another round of investment, and helps them make informed decisions about hiring and spending.