To develop budgets specific information about cash flow—inflows and outflows—is needed. The cash position changes constantly, depending on stock/ material/ supplies purchases, leases or wages payments or incoming payments.

Inflows are the inward movement of money from the sale of products/ services. If your organisation extends credit to customers and allows them to charge the sale of goods or services to an account, then inflow occurs as money is collected on the customers’ accounts. Proceeds (interest) from bank loans are also cash inflow. Lean what it takes to be a project manager by studying a diploma of Project managment by visiting this website.

Outflows are the movement of money out of a business—paying expenses. If the business involves reselling or on-selling goods, then the largest outflow is most likely to be for the purchase of inventory.

In a hospitality business this might relate to food and beverage supplies, toiletries and other consumables, linen and towelling (depending on the type of business). The purchase of assets—machinery, equipment, room fittings and fixtures, computers and accounting systems etc, plus the purchasing of fixed assets, paying back loans, and paying accounts payable are also cash outflows.

A positive cash flow bottom line indicates your business has a cash surplus at the end of the month. A negative cash flow bottom line indicates that your business has run into a cash flow gap—a period where cash outflows exceeds cash inflows when combined with your beginning cash balance.

Cash outflows and inflows rarely, if ever, occur at the same time. More often than not, cash inflows lag behind cash outflows, leaving the business short of money on occasion. This cash flow gap represents an excessive outflow of cash that might not be covered by an inflow for weeks, months, or even years.

Any business, large or small, might experience a cash flow gap from time to time—it does not necessarily mean the business is in financial trouble. Negative cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available.

What is cash surples in project managment

A cash surplus is the cash that exceeds the cash required for day-to-day operations. Handling cash surplus effectively is just as important as the management of money into and out of the cash flow cycle. Identification of excess funds allows management to assess new profit-making opportunities or to invest in additional resources with the aim of expansion. Alternately, cash surplus can be used to pay down debts.

Information from the following budgets will also be collected and analysed so the new budgets can be developed:

  • training
  • sales
  • operations
  • capital expenditure
  • advertising etc

The cash flow budget will, however, enable accurate estimates of income and expenditure—current and from previous time periods—and contribute to the process of drafting a budget.

  • Information/ data required for budget preparation can include:
  • Performance data from previous periods.
  • Financial proposals from key stakeholders.
  • Financial information from suppliers.
  • Customer or supplier research.
  • Competitor research.
  • Management policies and procedures.
  • Organisation budget preparation guidelines.
  • Declared commitments in given areas of operation.
  • Grant funding guidelines or limitations.

Mastering budgets as a project manager

This indicates a strong need for systems that will collect, collate, analyse, evaluate, store and disseminate information as it is required. This includes the financial information needed to allocate and manage the resources that will be needed to operate the business. Well-designed systems provide accurate, up-to-date information to the people who need it—the right information for the right people, in the right format, at the right time.

Financial information relating to costs, operations, assets, credit analysis, GST transactions, inventory management, invoices and accounts etc, enables management to monitor and control cash flow, production and productivity, solve problems, plan improvements, implement quality control procedures and plan future strategies. This information will contribute to the design, development and implementation of budgets.

The different cost centres in the organisation will obviously have different budgetary applications.

The master budget pulls each of these individual budgets together to form a budget for the overall organisation and provides a summary of the financial sources and financial requirements for operations.

It establishes planned and authorised expenditure and when compared with financial reports and running operational information, provides a monitoring tool so you can determine whether events over the budget period are following the predicted course. It indicates revenue shortfalls, excess of over cost spending and significant changes in the economic performance of the organisation, a department, project or product.

Thus budgets tell you where the organisation’s money is going and where the resources for operations will come from. They tell you what money is available for your team/ division/ section or what the organisation’s expectations are with regard to income generation by your team/ section/ division.