Short-term finance
Cash budgeting
Build a monthly cash budget from sales, collection and payment patterns, and find when and how much funding is needed.
Learning objectives
- Convert sales into cash collections using a collection pattern
- Build a monthly cash budget with opening and closing balances
- Identify the timing and size of the peak funding need
Profitable companies run out of cash. Sales may be booked in one month and collected the next; stock is bought before it is sold; capex and dividends arrive in lumps. A cash budget tracks cash month by month so that the treasurer can arrange funding before the gap opens, typically a revolving credit facility sized to the peak need.
The structure is always the same: opening cash + receipts − payments = closing cash, with each month's closing balance becoming the next month's opening balance. Comparing the closing balance with the minimum the business needs to operate shows when it must borrow, and how much.
Closing cash = Opening cash + Collections − Supplier payments − Operating payments − Capex and dividends Funding need = MAX(0, Minimum cash − Closing cash)
- Collections
- this month's cash sales + last month's credit sales collected
- Supplier payments
- last month's purchases, if suppliers are paid a month later
- Minimum cash
- the buffer the business keeps to operate safely
Included with a Formula Quest membership
The rest of this lesson is for members. Members get the full lesson, including its 2 graded exercises, and every other Finance Quest lesson.
That's the last lesson in Corporate Finance
Prove what you've learned with this track's assessed work — it counts towards your certificate.