As a small business founder, you’re constantly juggling sales, expenses, and growth while trying to keep cash flow steady. If you’ve ever wondered how to do a cash budget, the good news is that it’s simpler — and more useful — than you might think. Cash flow budgets give you a clear picture of how money moves in and out of your business, helping you stay liquid and confidently plan ahead.
In this article, we’ll explain how to put together a successful cash budget that works for your business — and how tools like Moss help you keep it on track, effortlessly. By linking card, invoice, and reimbursement spend to budgets in Moss, you can save time and build a budgeting system↗ you’ll stick to.
What is a cash budget?
Most broader financial reports, like statements and forecasts, highlight big-picture trends but don’t always reveal the day-to-day reality of your cash flow↗: how much money is actually coming in and going out. That’s where cash budgets come into play.
A cash budget is a financial plan that estimates your organisation’s cash inflows and outflows over a set period — usually monthly, quarterly, or annually — to provide a real-time view of liquidity.
The purpose of a cash budget is to forecast how much cash will be available at any point in time, helping you anticipate obligations and plan for growth.
There are many advantages of cash budgeting. Specifically, this approach:
- Ensures enough cash is available to cover expenses like bills and salaries.
- Prevents shortfalls during fluctuations and avoids surprise expenses.
- Identifies extra funds and allows advance planning for investments.
- Improves financial management↗ and allocates resources to promote stability.
Acting like a roadmap, cash budgets show how to start with “X” amount and end with a desired figure by following a pre-planned “route.”
Why a cash budget matters for small businesses
Without cash budgets, small businesses run the risk of negative cash flow, meaning more money enters than exits. This could result in liquidity crunches (failure to pay short-term bills and debts), late payments to employees and suppliers, and missed growth opportunities.
Cash budgets safeguard small businesses by ensuring money coming in exceeds outflow (known as positive cash flow). This helps them to:
- Cover operating expenses.
- Honour debts and avoid late payments.
- Build safety nets to stay liquid in times of cash flow shortages.
- Manage unforeseen expenses.
- Invest in growth opportunities.
By keeping cash flow positive↗ and predictable, founders can make smarter financial decisions and build resilience for the future. And while creating a cash budget might sound complex, modern tools make it simpler than ever to get started.
4 easy steps to create a cash budget
Creating a cash budget doesn’t require deep financial expertise. With clear inflow and outflow categories, founders can monitor operating cash flow↗, prevent crises, and seize opportunities. Here’s how.
1. List expected cash inflows
Start by defining the time period for your cash budget. Then, outline the main components, including your:
- Opening cash balance: the amount of cash available at the beginning of the period.
- Desired closing balance: the target amount you want to have left at the end.
- Estimated inflows: the cash you expect to receive during that time.
Next, identify and categorise your sources of income, including revenue and interest. Make sure to avoid overestimating: Base your projections on past performance or realistic growth expectations.
Most inflow will be from sales, which includes cash and credit. For more targeted accuracy, calculate how long it usually takes to collect payments from customers.
Suppose 70% of customers repay credit in 30 days. This means that a portion of a given month’s credit sales will only appear as cash receipts the following month. To calculate expected cash inflow for October, you’d need to list all September credit sales you’re expecting to be repaid.
2. List expected cash outflows
These are all your expenses and include (but are not limited to):
- Operating expenses
- Salaries and wages
- Supplier payments
- Loan repayments
- Capital expenditure
- Discretionary spend (costs that are non-essential to daily operations, like business lunches)
Some costs, like loan repayments, are fixed and stay the same each month. Others, like lunches, fluctuate depending on spending habits and circumstances. If you can, calculate the average of irregular expenses based on historical data.
Monitoring cash outflow promotes financial health. Regularly review receipts, bank statements, and other relevant documents to avoid missed costs.
3. Calculate net cash flow
To determine net cash inflow, subtract outflows from inflows. Consider the following example:
Opening cash balance: | €2,500 |
Cash inflows | |
Cash sales | €6,000 |
Credit sales from previous period | €4,000 |
Investment income | €500 |
Total cash inflows: | €10,500 |
Cash outflows | |
Operating expenses | (€2,500) |
Salaries | (€4,000) |
Supplier payments | (€1,500) |
Loan repayments | (€1,200) |
Discretionary spend | (€300) |
Total cash outflows: | (€9,500) |
Movement in cash balance: | €1,000 |
Ending cash balance: | €3,500 |
This example shows a positive net cash flow of €1,000, indicating strong liquidity and sound financial management.
4. Review and adjust regularly
The real value of a cash budget comes from updating it regularly — preferably monthly or quarterly. This provides oversight on cash flow, and luckily, it doesn’t need to be a burden. Tools like Moss↗ simplify the process by helping you consolidate spend and assign it to budgets in just a few clicks, so you always know how actuals compare to plan.
Common cash budget problems and solutions
Cash budgets aren’t hard to set up, but they require maintenance. This is usually where companies without finance teams struggle. Founders managing finances themselves may forget to add irregular expenses, rely on outdated spreadsheets, or fall victim to inaccurate forecasts.
Some practical cash budget problem solutions may help:
- Accurate inflow and outflow prediction: Incorporate a data-driven approach for reliable cash flow estimates. Base calculations on past figures, sales trends, and market research to ensure conservative predictions.
- Accurate data capture: To ensure reliable data, abandon outdated methods like manual entry and legacy software. Modern financial performance software tools ensure consistency by syncing spend↗ in real time.
- Missed updates: Regular reminders prompt you to add recurring costs and do recons of irregular expenses.
- Unexpected costs: Budget 5-10% above projected outflows to build a buffer.
- Delayed customer payments: Establish clear payment terms and send regular reminders to reduce delays.
Addressing these issues proactively can help maintain financial stability and improve forecasting accuracy.
Choosing the right approach for your business
There’s no one-size-fits-all cash budget approach. For small businesses, founders must incorporate sustainable practices to create a manageable system. Start small, don’t overthink inflows and outflows, keep categories straightforward, and use formats that fit your workflow. A simple Excel spreadsheet will often suffice in the early stages.
Bear in mind that as you scale and historical data compounds, finance metrics will become more complex. Keeping track of them now with automated tools will not only save you time and effort but also prevent potential issues and discrepancies down the line.
Moss: A smarter way to keep company spend on budget
By working out expected inflows and outflows, founders can calculate net cash flow for monthly and quarterly periods. This ensures sufficient liquidity to cover operating expenses, make timely payments, build safety nets, and close in on investment opportunities.
The big challenge is maintenance, which involves tracking expenses and ensuring financial data is accurate. However, this can be time-consuming and divert attention away from growth opportunities.
Financial tools like Moss↗ empower small businesses to keep their spending on budget by centralising company spend, streamlining categorisation, and providing structured exports to your accounting or ERP tools.
Moss turns day-to-day budget tracking from a tedious task into a more data-driven process that helps your business stay agile and in control of costs.
