Why you need a Budget and a Cash Flow Projection

November 27, 2018

Budget vs Cash Flow Forecast

A budget, or financial projection, goes hand in hand with the Cash Flow forecast to anticipate needs, spending, profits and cash flow. But the cash flow forecast projects when money will be received and spent, whereas a budget report estimates expectations with regards to revenues, expenses and profitability.  If the essential question and answer in the cash flow forecast is “When?”, then the budget report asks and answers “How?”.


A budget plans for how you will spend cash and records how you actually spend it. The budget is a reflection of your business plan and allows you to track your progress in adhering to it.  It can also be a good indicator of what changes may be necessary as time progresses.  Most businesses revisit their budget on a monthly basis and use the reports to make ongoing adjustments.  However, as time passes, a business that has become more stable by using their budget may find themselves more reliant on cash flow projections.  As any small business owner knows, there is a big difference between profits and cash flow.

Cash Flow Forecasting

The Cash Flow Projection predicts when money will be spent and when it will be received. Keeping up with your cash flow projection by comparing it to your cash flow statements will help improve your accuracy in your projections. You will be able to start predicting patterns, foreseeing periods where cash might be tighter.  A competent Cash Flow Projection is also particularly important in securing any funding you may need so you can anticipate when cash flow will be tight.  This will help identify the best sources of financing as opposed to accepting an immediate fix that may have negative long-term consequences.

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