Cash flow budget: how to build one that holds up
Do you know how much money will be in your account in three months? A cash flow budget gives you the answer. Here we show you how to build one step by step, with an example, the most common mistakes and tips to improve your cash flow.
A cash flow budget shows how much money comes into and goes out of the company, month by month, and how much is left in the account at the end of each month. It answers a simple question: will the money last?
A company can be profitable on paper and still run out of money. That's why the cash flow budget is one of the most important tools for a growing company.
The difference between a cash flow budget and a profit and loss budget
The profit and loss budget shows revenue and costs when they arise, and answers whether the company is making a profit. The cash flow budget shows money when it actually moves in and out of the account, and answers whether the company can pay its bills.
For example, an invoice of SEK 100,000 that you send in March counts as revenue in March in the profit and loss budget. In the cash flow budget it only appears when the customer pays, perhaps in April or May.
How to build a cash flow budget, step by step
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Start with the opening balance. The balance in the business account on the first day of the period.
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List the incoming payments. Customer payments (when the customer actually pays, not when you invoice), loans, new share issues and grants.
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List the outgoing payments. Salaries, employer contributions and taxes, rent, suppliers, VAT payments, loan repayments and larger purchases.
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Calculate the month's net flow. Incoming minus outgoing payments.
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Calculate the closing balance. Opening balance plus the net flow. It becomes next month's opening balance.
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Update it every month. Compare your plan with what actually happened, for example a customer who paid late, and adjust the coming months so your cash flow budget stays accurate.
Cash flow budget example
Here's what a simple cash flow budget looks like for a small company over three summer months. The company starts June with SEK 200,000 in the account.
| June | July | August | |
|---|---|---|---|
| Opening balance | 200,000 | 170,000 | 90,000 |
| Money in | 250,000 | 120,000 | 200,000 |
| Money out | 280,000 | 200,000 | 260,000 |
| Closing balance | 170,000 | 90,000 | 30,000 |
How to read it: each month starts with what was left at the end of the month before. Add the money coming in, subtract the money going out, and you get the closing balance. That becomes the opening balance for the next month.
What it shows: in July, many customers are on holiday and pay their invoices late, so only SEK 120,000 comes in. At the same time, salaries and holiday pay still have to be paid. By the end of August, only SEK 30,000 is left in the account.
Why it matters: with the budget made in May, the company sees this two months ahead and can act in time, for example by invoicing in advance or moving a large purchase to the autumn.
The most common mistakes
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Assuming every customer pays on time. Use realistic payment times, not the terms on the invoice.
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Forgetting payments that don't come every month. VAT payments, insurance, annual licences and the fee for the year end closing.
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Making it once and then forgetting it. A cash flow budget that isn't updated is wrong within a few months.
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Confusing profit with money in the account. A good profit doesn't mean the cash will last.
How many months should a cash flow budget cover?
At least twelve months ahead, month by month. If cash is tight, it can be wise to track the next few weeks week by week.
How to improve your cash flow
The cash flow budget shows when the money could run out. Here are a few ways to make it last longer:
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Invoice in advance. Invoice for the coming month instead of the past month, or quarterly and annually where you can.
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Pay after the work is done. Pay suppliers, and ideally consultants and hourly staff, the following month instead of up front.
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Shorten your payment terms. Also send a reminder as soon as an invoice is overdue.
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Plan for summer and December. Customers often pay their invoices later when many people are on holiday, but salaries, taxes and suppliers still have to be paid on time.
Get help with your cash flow budget
Building the cash flow budget is one thing. Keeping it updated every month is the hard part. At MinCFO we build the cash flow budget together with you and track it continuously against the bookkeeping, so you always know where you stand.
Book a short call, and we'll help you plan your cash flow for the months ahead.
Frequently asked questions
What is a cash flow budget?
A plan showing the company's incoming and outgoing payments month by month, and how much money is in the account at the end of each month.
What's the difference between a cash flow budget and a profit and loss budget?
The profit and loss budget shows whether the company makes a profit. The cash flow budget shows whether it has the money to pay its bills, based on when the money actually comes in and goes out.
How often should a cash flow budget be updated?
Every month, once the bookkeeping for the previous month is done.
How can I improve my cash flow?
Invoice in advance, pay suppliers after the work is done, keep payment terms short and plan ahead for periods when customers pay slowly, such as the summer.