The cash budget or cash forecast allows the company to program its short-term needs, the financial department of the company in almost all occasions pays attention to the planning of cash surpluses as well as to the planning of its deficits, since at obtain remnants these can be invested, but on the contrary, if there is a shortage, plan how to seek short-term financing.
The fundamental factors in the analysis of the cash budget are found in the forecasts made on sales, those made with third parties and the organization's own, all the inputs and outputs of cash and the net cash flow will be explained below are their basic approaches.
The Sales Forecast
The fundamental input in any cash budget is the sales forecast, this is provided by the marketing department, based on this forecast, the monthly cash flows that will result from projected sales and income are calculated. production-related disbursements, as well as the amount of financing required to sustain the forecast level of production and sales.
This forecast can be based on an analysis of both internal and external forecast data.
Internal forecasts: These are fundamentally based on a structuring of sales forecasts through the company's distribution channels. The data from this analysis gives a clear idea of sales expectations.
External forecasts: These are subject to the relationship that can be observed between the company's sales and certain economic indicators such as Gross Domestic Product and Available Private Income, these give a guideline on how sales can behave in the future. The data provided by this forecast provides a way to adjust sales expectations taking into account general economic factors.
Cash Tickets:
Cash inflows include all cash inflows in any period of time, among the most common are cash sales, the collection of accounts receivable or credit and all those that in the short term are likely to represent a cash inflow.
Cash
disbursements : Cash disbursements include all those cash disbursements that occur for the total operation of the company, in any period of time, among the most common are cash purchases, cancellation of accounts payable, payment of dividends, leases, wages and salaries, payment of taxes, purchase of fixed assets, payment of interest on liabilities, payment of loans and payments to sinking funds and the repurchase or retirement of shares.
The net cash flow, final cash and financing:
The net cash flow of a company is deducting from each month the disbursements of the inputs during the month. By adding the beginning cash balance to the company's net cash flow, the ending cash balance in each month can be found and finally any financing necessary to maintain a predetermined minimum cash balance must be added to the ending cash balance to find a balance. cash end with financing.
Interpreting the Cash Budget:
The cash budget provides the company with figures that indicate the ending cash balance, which can be analyzed to determine whether a cash deficit or surplus is expected during each period covered by the forecast. The analyst and finance manager should take the necessary steps to request maximum funding, if necessary, indicating in the cash budget due to uncertainty in final cash values, which are based on sales forecasts.
