Cash budget: building it month by month

Profit is not cash

Credit sales, inventory and sales taxes move money in time. A sale invoiced in March may be collected in May, inventory is paid for before it is sold, and the sales taxes you collect are not yours: they are remitted to the government.

What goes into the cash budget

• Receipts: sales when customers pay, loans received, owner's equity, grants and tax credits in the month they arrive.
• Payments: salaries and payroll taxes, suppliers, rent, equipment purchases, loan repayments and interest, taxes remitted.
• Month-end cash: the opening balance, plus receipts, minus payments.

Find the low point

The cash low point is the month when cash is lowest over the projection. Financing must arrive before it, with a cushion of 2 to 3 months of fixed costs. Raising money often takes 4 to 9 months: start when you still have at least 9 to 12 months of runway.

Levers when cash is tight

• Follow up on receivables, ask for deposits or invoice in stages.
• Negotiate 45- to 60-day terms with suppliers.
• Postpone non-essential spending and hiring.
• Use a credit line secured by receivables and inventory.

Track it against actuals

An annual budget is not enough. Every month, compare it to actuals, explain the variances and update the projection for the months ahead. When cash is tight, a 13-week cash forecast, updated every week, gives even more visibility.