Cash budgeting and liquidity statement preparation often require corrections and explanations, especially with long-term money management and solvency analysis. Given that these functions essentially touch on how a company makes money and spends it, top leadership makes sure department heads exercise care in reviewing cash flows, calculating monetary needs and projecting operating data.
Cash budget preparation enables a company’s leadership to focus on expense reduction, often providing fodder for lectures about the importance of sound money management. In essence, a cash blueprint helps the business anticipate its financial needs, seek ways to plug potential liquidity gaps and keep top leadership abreast of conditions on the ground. The goal is to cut costs where possible and shun excessive spending in strategic segments, but also in areas as mundane as office supplies management and postage. A cash outline typically lists the money a company plans to spend on such operating items as material costs and administrative charges, cash it will generate from sales and other investment activities, and the expected cash balance at the end of a period -- most often a month or fiscal quarter.
Cash Flow Statement
A cash flow statement helps a business tackle funding issues and forge a new, steady liquidity position -- doing so asset by asset and liability by liability. Also known as a liquidity report or statement of cash flows, a cash flow statement displays top leadership’s fundraising efforts on three fronts: operating, investing and financing. Operating cash flows tell investors how much money an organization garnered from the sales of goods and services, along with cash it remitted to service providers and vendors over a given period. This may be one month, two quarters or one fiscal year. Investing cash flows help corporate leaders gradually right the firm’s operating ship, especially if they detect in department heads a real concern that the business no longer has the competitive wind at its back. Investing activities cover purchases and sales of long-term assets, such as land and computer hardware. Financing cash flows touch on everything a company does to raise money publicly and privately, how it repays loans, how often it remits dividends to shareholders and the strategies company principals use to maintain an adequate economic standing.
Beyond the semantic proximity, cash budgets and cash flow statements interrelate from an operational perspective. Company management prepares a cash outline to anticipate funding needs, and a cash flow statement tells top leadership whether actual results match budget figures.
In the corporate context, various personnel are adamant that top leadership not make decisions based on faulty, incomplete liquidity data. These professionals include corporate treasurers, budget analysts and financial managers. Other employees helping company management in cash budgeting and reporting include accountants and investment analysts.