Cashflow budgeting is probably one of the most difficulty budgeting reports to prepare. A positive cashflow situation is easily one of the most important factors to ensure an on-going business concern.
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Cashflow budgeting is the best report to describe this funding situation. With the cashflow budgeting report, shareholders can determine how much initial capital is required to start a new business.
If the cashflow budgeting report reflects a negative cash deficit, the company owners will have to find a way on how to fund the deficit. However, if the cashflow budgeting report reflects a positive cash surplus, it means the company is operating on a good financial health. With a strong financial situation, the company can either plans to declare the profits as dividends to the shareholders or use the cash to expand the business further.
Using the previous example, I have constructed a simple cashflow budgeting report using the below assumptions.
1. Trade debtors are given one month credit term.
2. Trade creditors give 2 months credit term to the company.
3. Fixed assets are depreciated over 5 years.
4. Initial capital injection is $50,000.00
If you cannot view the cashflow budgeting report clearly, you can download the excel report here.