CFO's forecast future sources and uses of cash. These forecasts serve two purposes:

1. Alert the financial manager to future cash needs.
2. Provide a standard, or budget, against which subsequent performance can be judged.

There are several ways to produce a quarterly cash budget. Many large firms have developed elaborate “corporate models”; others use a spreadsheet program to plan their cash needs. The procedures of smaller firms may be less formal.

No matter what method is chosen, there are three common steps to preparing a cash budget:

1. Forecast the sources of cash. The largest inflow of cash comes from payments by the firm’s customers.
2. Forecast uses of cash.
3. Calculate whether the firm is facing a cash shortage or surplus.

The financial plan sets out a strategy for investing cash surpluses or financing any deficit.