How to create a cash budget

Key takeaways:

• A cash budget is a forward-looking plan that maps when cash is expected to arrive and leave your business.

• Preparing a cash budget follows a consistent process: Choose a timeframe, record your opening balance, estimate inflows and outflows by period, calculate net cash flow, and review the results for gaps.

• For businesses operating across currencies, platforms like Airwallex let you hold balances in multiple currencies, access interbank FX rates, and sync actuals with your accounting software – so your cash budget reflects what's really happening, not a delayed estimate.

Managing cash flow is one of the most practical challenges you'll face in business. You can be profitable on paper and still run into trouble if money arrives later than it needs to go out – a core working capital management challenge that cash budgets help solve. A cash budget is the tool that helps you see those timing gaps before they become problems, and it's more straightforward to build than most people expect.

What is a cash budget?

A cash budget is a financial plan that estimates when cash will actually arrive in your business and when it'll go out over a set period. So, it tracks actual money movements rather than accounting entries.

Think of it this way: a profit-and-loss statement tells you whether a sale was profitable. A cash budget tells you whether the cash from that sale will arrive in time to cover this month's payroll. You can be profitable and still run short of cash if the timing doesn't line up.

You'll end up with two key numbers: a net cash flow figure for each period and an ending cash balance. These tell you whether you can meet your obligations.

What goes into a cash budget?

A cash budget has two sides: cash inflows and cash outflows. Everything in it needs to be an actual movement of cash, not an accounting entry.

Your cash inflows cover any money that actually lands in your account. Here's what typically shows up:

• Cash sales: Revenue received immediately at the point of sale, with no payment lag.

• Accounts receivable collections: Payments arriving from invoices already issued; the timing depends on your payment terms and how quickly customers actually pay.

• Loan proceeds or financing receipts: Any cash drawn down from a credit facility or new borrowing.

• Asset sales or other one-off receipts: Proceeds from selling equipment or other irregular inflows.

Your cash outflows are all the payments you actually make. Here's what to track:

• Operating expenses: Salaries, rent, utilities, software subscriptions – the regular costs of running your business.

• Supplier payments: Payments to suppliers, timed to when they're due based on your payment terms.

• Tax obligations: VAT, corporation tax, PAYE – often lump-sum payments tied to specific months, not spread evenly

• Loan repayments: Both principal and interest, on the dates they're due

• Capital expenditure: Equipment purchases or one-off investments where cash changes hands

The key is knowing what's actually cash versus what's just accounting. Here's what to include versus what to exclude:

If you're dealing with foreign currency inflows or outflows, you'll need to think about when FX conversion actually happens. We'll cover this in the steps below.

How to prepare a cash budget step by step

This process works no matter what timeframe you pick or how big your business is. Here's how to do it.

Step 1 – Choose your timeframe

The three most common options to choose from are weekly, monthly, or quarterly. If you're building your first cash budget, monthly is usually the best place to start. Your timeframe determines how many columns your budget will have with one column per period.

Go with the shortest interval that still feels manageable to estimate.

Step 2 – Record your opening cash balance

Your opening balance is just whatever cash is sitting in your business bank account when you start. You can take it directly from a bank statement or your accounting software.

Here's the key: each period's closing balance automatically becomes the next period's opening balance. This means your whole budget links together like a chain.

Step 3 – Estimate your cash inflows

For each inflow type, ask yourself: when will this cash actually land in the account? Remember that means it is not when the sale was made or when the invoice was sent, but when did the money arrive?

If your payment terms allow customers to pay after a set number of days, sales from one period typically generate cash in a later period. Days sales outstanding (DSO) – the average number of days between issuing an invoice and receiving payment – is how you measure this lag.

For this step, you'll want to list out each source of cash that could arrive during the period. Here's what to account for:

• Cash sales

• Accounts receivable collections (with timing adjustment)

• Financing receipts

• Asset sales

If you're receiving payments in foreign currencies, the dollar value depends on when conversion happens. Holding balances in the originating currency rather than converting immediately gives you more control over timing and avoids conversion at unfavourable rates. Airwallex offers a multi-currency account that lets you hold balances in multiple currencies and convert when rates are favourable, rather than being forced to convert when you receive them.

Step 4 – Estimate your cash outflows

Tie every outflow to when payment is actually made, not when the cost was incurred. This is where timing matters most.

VAT is a perfect example. It's paid in a lump sum in the month it falls due, not spread across the quarters it was collected. This is one of the most common errors in first-time cash budgets – the VAT payment disappears into the background until it suddenly hits.

Remember: depreciation is not a cash outflow and doesn't belong here. It's an accounting adjustment, not actual money leaving your account.

If you're making international payments, FX conversion costs and transfer fees are real cash outflows. You'll need to estimate and include them. Using local payment rails with Airwallex rather than SWIFT reduces these costs and makes transfer timing more predictable. 

Step 5 – Calculate net cash flow and your closing balance

This is the heart of your budget. Here are the two formulae you'll need:

Net cash flow = total cash inflows – total cash outflows (for that period)

Closing cash balance = opening balance + net cash flow

A positive closing balance means more cash came in than went out. A negative closing balance means a shortfall. Both tell you something important, and your budget is working if it shows you these outcomes before they happen.

You'll repeat this calculation for every period in your budget window.

Step 6 – Review for surpluses and shortfalls

Once you've calculated all periods, scan the closing balances. Any period where the balance drops below the minimum cash cushion you want to keep is a red flag that needs a plan.

Here's what each outcome means:

• Surplus: You've got cash available to reinvest, pay down debt, or hold in a higher-yield account. Airwallex Yield is one way to earn returns on idle balances.

• Shortfall: Time to act in advance. We'll cover what to do about this in the next section.

Also, review the assumptions behind your numbers. Overly optimistic inflow estimates or underestimated outflows are more common than actual cash problems.

Cash budget format and a worked example

Every cash budget follows the same basic structure with four sections that build on each other:

• Opening cash balance: Cash at the start of the period

• Cash inflows: All receipts, listed by source

• Cash outflows: All payments, grouped by category

• Closing cash balance: Opening balance + net cash flow

Let's walk through a simple three-month example. Imagine a wholesale supplier who pays overseas manufacturers and collects from customers on extended payment terms:

Here's what to notice: the closing balance dips in Month 1 because a VAT payment and a supplier payment land in the same period. The accounts receivable collections lag one month behind sales. The business could address the dip by negotiating extended payment terms with suppliers or accelerating collections.

What to do when your cash budget shows a shortfall

If you've spotted a shortfall in advance, you've got time to adjust before it hits. Here are the practical moves you can make:

• Accelerate cash inflows: Chase overdue invoices, shorten payment terms for new customers, offer early payment discounts, or switch to upfront payment models where feasible.

• Delay non-essential outflows: Negotiate extended payment terms with suppliers, defer discretionary purchases to a later period.

• Use short-term financing: A revolving credit facility or invoice financing can bridge a temporary and predictable gap.

• Lock in FX rates in advance: If you're paying international suppliers, a forward contract removes uncertainty from outflow estimates. Airwallex FX rate locking can help here.

• Reduce cross-border transfer costs: Switching from SWIFT to local payment rails lowers the cash cost of international outflows and makes transfer timing more predictable. Airwallex local rails can support this.

If your closing balance is negative across multiple consecutive periods, that signals a deeper issue with your business model, pricing, or cost structure, and is not something a timing adjustment will fix.

Why businesses choose Airwallex for budgeting and expenses

Creating the cash budget is only half the battle; the real value for your business lies in having the financial infrastructure to execute and monitor that budget in real-time. Airwallex provides an all-in-one platform that transforms how Australian businesses manage their global spend, ensuring every dollar aligned with your budget is tracked and optimised. Here is why over 200,000 businesses use Airwallex for their finances:

• Bank like a local, globally. Create a multi-currency to accept payments from 70+ countries and make payments to 200+ countries. Plus, you can create local banking details in 21 countries for easy global payments. 

• Streamline accounts payable: Simplify your bill pay process by uploading invoices directly to the platform. You can pay domestic and international vendors in bulk using market-leading FX rates, while custom approval workflows ensure all payments stay within your budgeted limits.

• Control spend with Corporate Cards: Issue multi-currency cards to your team globally and create virtual cards to manage shared team expenses. Create pre-set spending limits to manage purchasing power without losing control, as every transaction is tracked against your budget in real-time.

• Automate Expense Management: Eliminate manual data entry and receipt chasing. Employees can upload receipts via the mobile app, which are then automatically reconciled with your accounting software, providing an up-to-the-minute view of your cash flow.

• Global billing and collection: Maximise your cash inflows by offering customers local payment methods in multiple currencies. Airwallex’s billing tools support recurring payments and integrate seamlessly with your tech stack to reduce payment friction.

• Direct accounting integrations: Sync your transactions directly with Xero, NetSuite, or QuickBooks. This creates a continuous feedback loop between your actual spend and your cash budget, making your end-of-month reporting and future forecasting significantly more accurate.

Frequently asked questions

What's the difference between a cash budget and a cash flow statement?

A cash flow statement is a historical document and it records what cash actually moved in and out during a past period. A cash budget is forward-looking: it projects expected movements so you can plan for shortfalls or surpluses before they occur.

How often should I update my cash budget?

Monthly is the standard minimum for most businesses. If you've got tight cash cycles, seasonal revenue patterns, or large irregular payments like quarterly VAT, you'll benefit from weekly updates.

Why is depreciation excluded from a cash budget?

Depreciation is an accounting adjustment that reduces the book value of an asset over time; it doesn't involve any cash changing hands. Because a cash budget only captures actual movements of money, depreciation has no place in it.

What is a rolling cash budget and should I use one?

A rolling cash budget extends forward by one period every time you complete a review. Instead of building a fixed plan once a year and leaving it static, you always maintain a consistent window of forward-looking visibility. This approach is more responsive to how your business is actually performing.

How do I prepare a cash budget when my business receives and pays in multiple currencies?

Plan inflows and outflows by currency separately, then account for FX conversion in the period it actually occurs rather than assuming immediate conversion.

Holding foreign currency balances in dedicated accounts – rather than converting everything on receipt – gives you more control over timing and reduces the impact of rate movements. Platforms like Airwallex make this manageable by letting you hold, convert, and track balances across currencies from one place.

This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.