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Cash Flow Budgeting

When creating financial forecasts and cash flow projections for your eCommerce business, it can also be useful for your financial planning to consider the importance of cash flow budgeting, to keep your cash in check. 

Cash flow budgets are an estimate of the amount of cash inflows your business will need to cover all of its cash outflows over a given period of time, often given as a single figure. The purpose of cash flow budgets are to avoid periods of negative cash flow, especially when there is a high volume of expected cash outflows for that period, and allow businesses to make more informed financial decisions in the face of unexpected cash expenses.

Businesses can create a cash flow budget alongside their cash flow forecasting, using previous cash flow statements to inform budget setting.


Importance of Cash Flow Budgets

Establishing a cash flow budget can be invaluable for understanding the baseline cash income your business needs to meet in order to avoid experiencing negative cash flow. Cash flow budgets can be especially valuable for small eCommerce businesses who are more likely to struggle or fail due to cash flow issues. 

Many businesses, but particularly small eCommerce businesses are often more fixated on profits and may not appreciate how important it is to stay on top of cash flow. One common example of this in an eCommerce business is overstocking on high selling products, only to find that once the busy period has subsided, they are unable to shift the stock they paid for. This decision was likely made with a profit-focus, although it is unlikely that the owner considered the short-term cash flow implications. 

By establishing a cash flow budget, businesses can make more informed decisions and avoid potential cash bottlenecks created by issues such as overstocking.


How To Create A Cash Flow Budget

Here are some helpful steps to take when getting started with creating your cash flow budgets for upcoming periods.

Review projected sales

An ideal place to start building a realistic cash flow budget is to look at previous sales data, if you have it available. From this data, you can determine how much revenue from sales your business can expect to generate during the following months.  This is also a vital time to take into account your payment windows. Consider how long you usually allow customers to pay you when issuing invoices. This could mean that even though you are expecting to sell a certain amount of stock over the next month, you may not actually be in receipt of payment for some of these items until the following month.

Outline other upcoming cash inflows

Sales are  not the only source of cash revenue that your business may receive. Your business may see cash inflows from investments, sale of equipment or property, or from other sources. Review any upcoming sources of cash flow that could impact your overall cash revenue for the upcoming periods.  

Analyse previous cash expenditures

To understand how much your business will need to pay in cash expenses over the next month it can be useful to see what expenses were paid for last month. Were these expenses fixed or are they variable? Are these expenses due again this month, next quarter, or are they a one-off expense? 

Understanding the frequency of your regular expenses can help you to create a solid foundation for your cash flow forecasts and budgets. 

This is also a good time to review the dates that you are expected to pay for certain expenses throughout the month to determine if your business will have enough cash to meet each payment deadline. 

Calculating cash flow budgets and break even

Once you have created this framework, you will have a clearer picture of your cash inflows and outflows for this period. To work out your cash flow budget, simply subtract your total cash expenditures from your total cash income. This will give you either a positive or a negative figure of your expected cash flow for this period. 

The amount needed to ‘break even’ will be the total cost of your expected cash expenses. This figure can be used as a benchmark for your cash flow budget as it will ensure all of your expected costs can be covered without creating a deficit. If you anticipate there is a chance you could see other cash expenses in this period, such as noticing one of your computers is beginning to create efficiency problems and will need replacing soon, or you may need to switch eCommerce platform providers as your current platform is becoming slow and contributing to high cart abandonment rates, then consider adding some buffer to your cash flow budget. 

Completing your cash flow forecast

With all of this information collected, you will be able to complete your cash flow forecasting for the period ahead. Creating a visual picture of how your cash flow budget is allocated. Creating a cash flow forecast can be an easier task for more established eCommerce businesses, and smaller business owners may find it takes a few months to find a regular pattern of cash income and expenses to build accurate forecasts from.

Regardless of the size or age of your business, the practice of forecasting and budgeting your cash flow can help to mitigate the risks and potential for unexpected periods of negative cash flow, and ensure that your business can always pay for bills on time.


What is the Difference between a Cash Flow Forecast and a Budget?

Cash flow forecasts and cash flow budgets are relatively similar. Cash flow forecasts can help to inform cash flow budgets, however they do give slightly different financial views. 

Cash flow forecasts offer a detailed breakdown of all expected upcoming cash revenue and expenses, and are used to predict either a positive or negative cash flow for the upcoming period. Cash flow forecasts can also contain details of your transactions, acting like a structured version of a business bank statement. 

In contrast, cash flow budgets are often a single figure indicating the minimum cash income your business needs to avoid negative cash flow for a given period. Providing significantly less detail than a cash flow forecast.

Cash flow forecasts and cash flow budgets are interlinked as a forecast can be used to create and determine the most realistic cash flow budget for that given period. 




Using a cash flow budget can reshape how your business manages monthly cash flow and help you to avoid prolonged periods of negative cash flow. To get started with cash flow forecasting to help inform your budgets, download our eBook chapter ‘What is a Cash Flow Forecast?’. 

For more guidance on getting started with cash flow forecasting and understanding its role in your business, download our other eBook chapters.

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