Budget and Cash Flow Planning
We’ve all heard the expression fail to plan and you plan to fail! The same can be said for your business finances. Planning is crucial in your business for a check point as much as anything that you are on track.
Small business budget planning
WHAT IS A BUDGET
Budgeting helps keep track of your business’s financial health and will quickly pin point any overspend in your business.
It’s important that when you set your budget you put in everything, otherwise when you are tracking your actuals against budget you are always going to either be overspending or understanding.
For instance, subscriptions, marketing, accounting fees to name a few need to go into your budget with a realistic expectation of what you will spend over 3 months, 6 months or 12 months.
A budget will help you with:
- Making informed financial decisions.
- Deciding when you can take on staff.
- Deciding if capital spend should be financed or paid outright.
PREPARING YOUR BUDGET
When you’ve been trading for a while, you will be able to use historical data for trends to set your budget. Choose the time frame you want to set the budget over. Ie. 3 months, 6 months or 12 months.
Unfortunately many new business owners find this task daunting and difficult to do. How much budget should you allocate to each category? If you find this super confusing, you are probably better getting a bookkeeper or accountant to help you.
Cash Flow Forecasting
what is a cash flow
Not to be confused with budgeting, this is an estimate of the cash you expect to flow in and out of your business, and will highlight and help you prepare for any potential scenarios such as more cash going out than coming in. It means you can forward plan and avoid reliance on loans by managing the situation such as chasing debtors earlier or making sure your invoices go out on time to avoid delay with payment.
Cash flow forecasting is only as good as your data put into your accounting software. If you don’t keep accurate up to date records you will find it difficult to forecast.
Once you have your cashflow working, make sure you update it regularly with your actuals so that you can assess whether you were right in your predictions of what you expected to happen.
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