Understanding cash budgeting

By Priya Chetty on November 10, 2011

The most efficient cash flow management tool is Cash Budgeting. In general, a budget is a plan. Managers and owners use it as a tool to achieve their company goals over a specific period of time. It is one of the most primary tools used for short-term financial planning virtually planning to cash flow. It is usually generated on a monthly basis. A flexible cash budget allows the manager to foresee short-term financial opportunities and requirements for the business. One month the business may left with surplus cash and may decide to save the money in market funds or securities or may decide to take advantage of a bargain price in the market place. At a different point of time, they may face a shortfall in funds and decide to withdraw money from the accessible savings or may apply for a short-term loan to fund their needs.

The preparation of a cash budget is important for any establishment, small or large. Some small entities may survive without cash budgeting for a time period, but most savvy businesses realize its importance better. There are other types of cash budgets that can be prepared like pro forma financial statements, but a typical cash budget is a management plan meant for the most crucial factor of a company’s viability, i.e., its cash position. The cash position of a company exhibits its supplier’s payment design, how a financer will respond to a loan request and directly influence dividends leads to owner’s profitability and equity.

Source: Financial Decision-making: A CPA/Attorney’s Perspective by David L. Fraley (PSI  Research/Oasis Press, 1998

Priya is the co-founder and Managing Partner of Project Guru, a research and analytics firm based in Gurgaon. She is responsible for the human resource planning and operations functions. Her expertise in analytics has been used in a number of service-based industries like education and financial services.

Her foundational educational is from St. Xaviers High School (Mumbai). She also holds MBA degree in Marketing and Finance from the Indian Institute of Planning and Management, Delhi (2008).

Some of the notable projects she has worked on include:

  • Using systems thinking to improve sustainability in operations: A study carried out in Malaysia in partnership with Universiti Kuala Lumpur.
  • Assessing customer satisfaction with in-house doctors of Jiva Ayurveda (a project executed for the company)
  • Predicting the potential impact of green hydrogen microgirds (A project executed for the Government of South Africa)

She is a key contributor to the in-house research platform Knowledge Tank.

She currently holds over 300 citations from her contributions to the platform.

She has also been a guest speaker at various institutes such as JIMS (Delhi), BPIT (Delhi), and SVU (Tirupati).