THE CASH OR CASH BUDGET
It is an essential planning and control tool for companies. It is mainly based on financial forecasts in order to allow the company to assess their liquidity and to make the necessary corrections.
For example, a company may find itself with a temporary lack of liquidity during a period of the year when activities are weaker. We have only to think of ski resorts. The majority of their activities are during the winter period and activities are almost non-existent during the summer.
One could compare cash to a full tank of gas in a car. If you are planning a long trip without a gas station, for example in the Laurentians, then it will be important to carefully calculate the number of fill-ups needed for your trip if you don't want to run out of gas.
Typically, businesses plan to use a line of credit, loan, or expense control to deal with a lack of cash. When there is a surplus of liquidity, companies invest the excess amounts in financial products. In these cases, the cash budget helps to predict the situation so as not to be caught off guard. Prevention is better than cure!
The cash budget is relatively simple to understand because it represents all future cash inflows and outflows into the company's bank account.
Forecast balance sheets
The provisional balance sheets allow to know the financial situation of the company at a given date in the future. In general, financial forecasts are made over a three-year period. They make it possible to assess what the company's financial situation will be in the coming years according to our assumptions and estimates.
Projected balance sheets are a good tool for forecasting the state of assets, debts and the book value of the owners' situation.
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Budget and financial forecasts