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Are you running your business by the seat of your pants and hoping you’ll find the money at the end of the month to pay the bills? If so, it’s likely you’ll end up with uncontrollable debt and financial pressure that could sink you.

Do any of these apply to you?

  • You’ve got no plan for expenditures
  • Your customer invoices are unpaid for 90+ days
  • Your financial record keeping is poor

If yes, beware. These are three major warning signs that you’re losing control of your cash flow. To keep your business financially healthy, a cash flow budget will help you project the inflow (receipts) and outflow (disbursements) of cash on a month-to-month basis.

Preparing your cash flow budget

Nothing’s cast in stone and, for that reason, trying to project your budget too far into the future won’t be of much help. On the other hand, not forecasting far enough ahead won’t help you plan and correct your course when needed. A six-month cash flow budget is ideal.

Why is a cash flow budget important?

For your business’s long-term health, you must ensure more cash flows in rather than out of your business. It also helps you plan for seasonal changes, additional expenses, irregular costs, and when making critical decisions.

Prep needed for your cash flow budget

To produce your budget, you’ll need the following numbers to work with:

  • Anticipated receipts
  • Anticipated disbursements, and
  • A sales forecast.

Sales forecast

Any financial plan must begin with a forecast, even though it may not be your actual sales amounts. Because there are so many variables that could affect your plan, a forecast is your best guess at predicting your numbers. Using your sales figures from the previous financial year will give you a good starting point.

Receipts (inflows)

Depending on how your company collects money from customers (accounts and/or cash), you’ll need to consider your income from two points of view.

The first, and most simple, is cash receipts. In this case, your receipts will be equal to your

sales forecast. However, if your customers pay on account, you’ll need to factor in trends or patterns from your accounts receivable reports and project your income based on the timing of those receipts.

Disbursements (outflows)

Outgoing cash, or disbursements, can quite accurately project accounts payable, payroll costs, dividend payments, interest payments, and other short-term alterations to existing cash flow. When you compare your receipts to your disbursements, you’ll see how your overall cash flow is obtained.

Your roadmap

A budget is a road map for your business. It helps you to predict cash flow, identify areas that need improvement and run your operations smoothly. It’s also an efficient way of tracking the extent to which your business has achieved its goals.

In the case of a cash flow budget, it provides you with the status of your company’s cash position at any given time. This helps you make critical decisions for projected shortages by using excess funds from other periods, and it helps you to prioritise payments during the period. And finally, it’s a great gauge for analysing budget vs actual variances in your cash flow.  

If you’re tired of running your business by the seat of your pants, give us a call to discuss your financial planning.

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