## Cash Planning
Cash planning is a technique to plan and control the use of cash by forecasting expected cash inflows and outflows over a specific period.
Key features:
- Presented as a projected cash statement
- Frequency: daily, weekly, or monthly depending on business size and management style
- Becomes essential as a company grows and operations become complex
First Step — Estimate cash required via:
| Tool | Nature |
|---|---|
| Cash Flow Statement | Shows actual past inflows and outflows |
| Cash Budget | Shows forecasted future inflows and outflows |
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## Cash Budget
### Meaning
A cash budget is the most significant tool to plan and control cash receipts and payments over a specific period. It represents the firm's cash requirements during the budget period.
### Four Purposes
| Purpose | How it Helps |
|---|---|
| Coordinate timing of cash needs | Identify in advance when shortages or surpluses will occur |
| Pinpoint excess cash periods | Invest the excess to earn income |
| Enable timely creditor payments | Take advantage of early-payment cash discounts |
| Arrange funds in advance | Handle shortages via overdraft; invest surplus on favorable terms |
### Action Based on Cash Budget
- Surplus cash → Invest in marketable securities
- Cash shortage → Arrange overdraft or bank credit
### Main Components
1. Select the budget period – defines the planning horizon
2. Identify all factors affecting cash flows:
- Operating Flows – cash from regular business operations
- Financial Flows – cash from loans, equity, investments
> Key insight: The cash budget helps pre-plan by highlighting surplus and shortage positions so that corrective steps can be taken in advance — not after a crisis.