A cash budget is not far removed from an operation budget. Yet there is some distinction to be noted.
A cash budget is by design, an approximate estimation of the inbound and outbound flows of cash during a specific period of time.
It is typically used to determine the financial solvency of a company’s regular operations.
If the cash budget is weak, there may be a significant financial issue at play. This could even mean that a company may have to shut down some -or all- of its operations.
A cash budget is typically used for identifying “dead money” which is not being used in a productive way.
Generally, cash budgets offer insight into numerical strategies a business might implement. This allows them to make proposed expenditures towards new projects safely, without threatening the operational budget in the process.
A business is enjoying a flurry of profitability after scaling-up and redefining its existing product line.
A cash budget notes that much of the available finances on hand are being left in the business account (unused at this time). This would represent a great opportunity for further analysis.
Consideration towards using these additional cash reserves for spurring the company’s growth by funding development projects, would be highly advisable.