What does a cash-flow budget forecast?

A cash-flow budget is primarily used to anticipate the timing and amount of cash inflows and outflows over a specific period. This tool is crucial for managing liquidity and ensuring that there are sufficient funds available to meet financial obligations when they arise. By forecasting cash flows, organizations can plan for expenses, manage their cash reserves, and avoid potential shortfalls that could disrupt operations or lead to financial difficulties.

Forecasting cash flows involves analyzing various factors such as expected revenue from operations, timing of incoming funds (like payments from customers or grants), and outgoing cash requirements (like vendor payments or payroll). This comprehensive overview allows management to make informed decisions about expenses, investments, and any need for short-term borrowing.

While options related to operational expenditures, revenue from grants, and employee salary expenses are elements that can be part of broader financial planning, they do not encompass the primary purpose of a cash-flow budget, which focuses specifically on the movement of cash in and out of the organization. The essence of a cash-flow budget underlines its utility in managing the financial health of an organization by ensuring that cash receipts and disbursements are monitored effectively.