Your company may turn a profit today, but will it be profitable six months from today? It is crucial to carefully track how much money your company is taking in and how much it needs for the future. Maintaining a cash flow budget will help you forecast your company’s overall financial health.

Many companies are profitable on paper, yet still get into trouble because they do not have the cash on hand to fund their operations. The owners of these companies may be familiar with their income statement, but they do not know their cash balance.

Your cash flow budget (sometimes called a “cash flow forecast”) does not need to be complex. You can keep the information in an Excel spreadsheet. Some accounting software products like QuickBooks and Xero can also help you create a cash flow budget.

Your calculations in the cash flow budget do not need to be completely accurate. You are making your best educated guess as to your company’s cash position for the coming months. A reliable cash flow budget requires regular revision at least once per month.

How a Cash Flow Budget Can Work

What follows is a fictional example to illustrate a typical cash flow budget. Mike’s company, Long Haul Truckers Inc., did $100,000 worth of business in December. However, customers usually wait 30 to 45 days to pay the company’s invoices. When updating his cash flow budget, Mike budgets that $100,000 as part of his cash inflow two months out. The work may have been done in December, but the cash will not come in until early February. Mike will not be able to use that money to operate Long Haul Truckers until then.

The cash flow budget is an effective way to keep up with real-time company expenditures. Fixed costs for Mike’s company – items like mortgage and lease payments, salaries and insurance – are $30,000 per month. Variable costs – which include expenses like fuel, lodging and other operating costs – range greatly from month to month. Those costs largely depend on how many miles Long Haul Truckers puts on its fleet. Mike also knows that he must purchase a new trailer in January. His company’s first payment on the trailer comes the following month, so he budgets that expense for February.

Taking into account the influx of $100,000 in February and the new trailer expense that same month, here is how Mike’s cash flow budget looks:  

Cash Flow Budget

Long Haul Truckers Inc.

  December January February March
Cash Inflow        
Beginning Cash Balance $10,000 $10,000 $15,000 $75,000
Receivables for Services $45,000 $40,000 $100,000  
Total Inflow $55,000 $50,000 $115,000  
Cash Expenditures        
Fixed Costs $30,000 $30,000 $30,000 $30,000
Variable Costs $15,000 $5,000 $9,000  
Equipment Purchase $0 $0 $1,000 $1,000
Total Expenditures $45,000 $35,000 $40,000  
Monthly Net Cash Flow $0 $5,000 $60,000  
Cumulative Cash Flow $10,000 $15,000 $75,000  

Thanks to the $100,000 that Mike expects to receive by February, Long Haul Truckers should have about $75,000 in the bank at the end of that month. The net cash flow for February, which subtracts expenditures from the receivables for that month, is projected to be $60,000. Mike estimates the cumulative cash flow at the end of February will be $75,000. Cumulative cash flow combines the cash flow at the beginning of the month with the net cash flow produced by the end of the month.

Most of the fields for the month of March are not filled out yet. It is too far in the future for Mike to accurately forecast receivables and variable costs. This illustrates why it is important to regularly update the cash flow budget, as inflows and expenditures may change.

For more information on the importance of cash flow, read our article, “Basic Accounting for Trucking Companies.”

To learn more about our services that help you move your business forward, contact RTS today!

Sources:, American Express Open Forum

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