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Cash flow budget: example, setup and the difference with a forecast
A budget with a tidy profit can still be in the red by April. Here is how to translate your annual plan for the bank, with a six-month example and the items almost everyone forgets.
November is the month of the budget. Next year's revenue is on paper, the costs have been calculated and the bottom line shows a tidy profit.
Yet the bank, your accountant or your own peace of mind has little use for that document in March. For that you need a cash flow budget: the same plans, translated into what happens in your bank account each month. In this article you will read how to set one up, with a completed example you can copy, the items that are almost always forgotten and how you then compare it against your actual figures.
The difference between an operating budget and a forecast
An operating budget is about revenue and costs and ends with a result. A cash flow budget is about receipts and payments and ends with a bank balance. The difference lies in the timing, and in items that cost money but are not costs.
January's revenue comes in during February or March. An investment appears in the operating budget only as depreciation, but leaves the account in one go. And VAT does not appear in the operating budget at all, while you see it in your bank account every quarter.
A cash flow forecast is something else again: the updated expectation for the coming months, based on what is actually outstanding now. You make the budget once, the forecast you keep refreshing. This article is about the budget, the annual plan.
From operating budget to bank account
Start with your operating budget per month and apply three corrections to it.
Shift the payment terms. Move the revenue by the number of days your customers need on average to pay, and the purchasing by the term you maintain with your suppliers. If customers pay after 40 days, then the bulk of January's revenue comes in during February, and an invoice from late January only in March.
Add what is money but not costs. Investments at the moment you pay them, loan repayments, the quarterly VAT payment, the provisional corporate tax assessment and any dividend distribution or private withdrawal.
Take out what is costs but not money. Depreciation goes out. Holiday pay shifts: in your profit and loss account you set aside one twelfth each month, in the bank it goes out in one go in May.
What remains is a list of receipts and payments per month, a net movement and a closing balance that carries over to the next month.
A completed example, first half year
A wholesaler with an opening balance of 40,000 euros on 1 January, fictional figures. The operating budget shows a healthy profit. Look at what happens in the bank account.
| Amounts in euros | Jan | Feb | Mar | Apr | May | Jun |
|---|---|---|---|---|---|---|
| Opening balance | 40,000 | 20,000 | 23,000 | 8,000 | -8,000 | -23,000 |
| Receipts from customers | 76,000 | 80,000 | 84,000 | 86,000 | 88,000 | 90,000 |
| Purchasing and suppliers | 35,000 | 37,000 | 39,000 | 40,000 | 41,000 | 42,000 |
| Wage costs | 31,000 | 31,000 | 31,000 | 31,000 | 31,000 | 31,000 |
| Holiday pay | 0 | 0 | 0 | 0 | 22,000 | 0 |
| Fixed costs | 6,500 | 6,500 | 6,500 | 6,500 | 6,500 | 6,500 |
| VAT payment | 21,000 | 0 | 0 | 22,000 | 0 | 0 |
| Investment (delivery van) | 0 | 0 | 20,000 | 0 | 0 | 0 |
| Loan repayment | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 |
| Net change | -20,000 | +3,000 | -15,000 | -16,000 | -15,000 | +8,000 |
| Closing balance | 20,000 | 23,000 | 8,000 | -8,000 | -23,000 | -15,000 |
Revenue grows every month and the business is profitable. Yet the account is in the red from April through June. Three items coincide: the delivery van in March, the VAT payment in April and the holiday pay in May. None of the three is a surprise, but without a cash flow forecast you only see them when they leave your account.
That is why you draw it up in November. Right now you can still choose: the van in July instead of March, a credit facility of 25,000 euros arranged before you need it, or tighter payment terms for your biggest customers. By April that choice is gone.
The items almost everyone forgets
- VAT per quarter. Four spikes a year, and in January it coincides with an often slow December.
- Holiday pay in May. Roughly 8 percent of the gross salary over a full year, all in one month.
- Provisional corporate tax assessment. Per month or in one go, depending on how you pay.
- Annual premiums and licences. Insurance, software contracts and memberships that are debited in one go.
- Dividends and private withdrawals. They appear in no operating budget, but they do show up on your bank account.
- Repayments. The interest is a cost item, the repayment is not, and it is that last one that is often the larger amount.
Put the forecast next to reality
A forecast you draw up in November and file away in December serves little purpose. The value lies in the comparison: each month the actual figures next to the plan, and looking at where things deviate.
If revenue runs ahead of the forecast but the balance lags behind, your customers are paying more slowly than you assumed. That is a signal to act on, not something to discover at the end of the year.
In your accounting package the budget is usually shown per general ledger account per period, so as an operating budget. If it is there, the liquidity dashboard puts budget and actuals side by side, only for the months you have entered a budget. It also shows the forecast of your balance for the months still to come. That way you see in one overview whether the result is going to plan and what the money is doing.
The dashboard runs in Claude, connected via Exact AI Connect or the variant for AFAS and Twinfield. If there is no budget in your package, the budget card stays empty with an explanation, instead of showing zeros.
That comparison is of course only as good as the figures underneath it. If you want to be sure of those before you start comparing, the checklist for your month-end close checks whether the month is complete and whether the balance sheet adds up. Both overviews can be found with the financial dashboards.
We believe a budget is not an annual document but a measuring stick. Anyone who holds it up against the figures every month adjusts course in March instead of being surprised in December.
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Try these questions in your own AI assistant
- "Put this year's budget per month next to the actual figures, and show the biggest deviations at the top."
- "Which one-off expenses from the past twelve months should I include in next year's budget?"
- "How much VAT did I pay per quarter over the past year, and how much holiday pay in May?"
- "What is the average payment term of my customers and of my suppliers over the last six months?"
Benefits and points of attention
Benefits of a liquidity budget: you see tight months half a year in advance, you can substantiate an investment or a credit application, and you have a measuring stick to hold against the rest of the year.
Points of attention: a budget is only as good as the assumptions behind it, especially the payment term of your customers; take that from your records instead of from your terms and conditions. The comparison with reality only works if your budget is in your accounting package per period. And for the dashboard you need the Analytics subscription and a paid Claude subscription.
Frequently asked questions
An operating budget deals with revenue and costs and ends with a result. A cash flow budget deals with receipts and payments and ends with a bank balance. The difference lies in payment terms, VAT, investments, repayments and depreciation.
For comparison with the actual figures, yes. Budget lines are only read, so you enter them in your accounting package itself. For the forecast a budget is not needed; it works with your balance, your outstanding items and your history.
As supporting evidence, yes. When arranging financing, banks usually ask for twelve months, sometimes in their own format. Fill that in with these figures and add the assumptions: which payment term, which revenue growth and which investments.
Monthly, with the large items shown separately. Wages, purchasing, VAT, investments and repayments as individual lines; small fixed costs can be grouped together. More detail does not make it better, only harder to keep up to date.
Then the budget is wrong, and that is normal. Do not update it retroactively; leave it as the plan and use the forecast for the updated expectation. The difference between those two is exactly what you want to know.
