You may have heard accountants and other finance professionals talking about how vital budgeting and managing cash flow is.
The question is, will a budget and cash flow forecast save your business?
Well, budgeting gives us something to aim for, and consistent cash flow is needed to achieve our desired outcomes.
And we need to create and use both in our lives and businesses.
So, you may be thinking:
- Why do I need a budget or cash flow forecast anyway?
- How do I make sure money is in the bank to pay my staff and myself?
- What price should I put on my product and service?
Businesses, particularly small ones, can struggle with managing finances, especially meeting compliance deadlines for taxation and superannuation.
Do you want to be in the position of having a tax debt?
Or not being able to pay your staff on time?
Budgeting (and cash flow forecasting) can be the difference between growth and sustainability or chaos and failure.
But where do you start?
What do you need to include in a budget and cash flow forecast?
Before I answer these questions, let’s look at what each of these is in more detail.
What are budgets & cash flow forecasts?
A budget is an estimation of revenue and expenses over a specified future period and a means to track your progress.
Budgets are usually created each year and referred to each month.
A cash flow forecast shows money coming in and out and the timing of it.
For example, you may invoice for one month but receive payment next month. It is generally reviewed and adjusted every week.
Why do I need them?
These tools keep us organised and give us something to aim for.
Each provides a framework to work with and helps us avert issues like a cash deficit.
They also allow us to take advantage of new opportunities, enabling us to grow our business and wealth.
Banks, lenders, and grant providers will also request you provide a budget and cash flow forecast when applying for funds to support working capital, purchasing assets, and project grant applications.
How do I put them together?
Putting together a budget and a cash flow forecast can seem complicated and daunting.
But it doesn’t have to be.
It would be best to have a framework, some boundaries, and a template to complete.
Here are some things you should focus on:
- Start with what products and services you sell – how many, what frequency, and what price?
- Think about what expenses you have – things like staff, rent, subscriptions, travel, utilities, office expenses
- Brake down the cash flow forecast by week and your budget by month and year
- Have a checklist of what to include and a list of assumptions you used
- Use a budget and cash flow forecast template:
- enter all income and expense categories for the year by month. Total this by category, month, and year.
- You may need to have separate sheets showing how the monthly figures come together (e.g.: x number of services @ $Y price each)
Now, how do I use them?
There’s not much point in putting together a budget and cash flow forecast unless you are going to do something with them.
You’re just wasting your time!
So, how do I use each of these finely crafted documents?
With the budget, you would want to:
- Add the budget to your accounting software
- Run a Profit and Loss report each month
- Compare your budget to the actual outcomes
Now you can then adjust for current and projected future outcomes.
Cash flow forecast
In the cash flow forecast, you need to:
- review your cash coming and out of your bank account weekly
- compare this to the previous week’s forecast
- update your bank account opening balance for the week
- adjust your forecast for cash coming in and out for current and future weeks
From my experience, this can be quite a challenge for many businesses, particularly smaller ones, and not-for-profits.
That’s why I created an online course with a simple but structured approach to budgeting.
The course takes participants through:
- understanding why we need a budget and what we need to include
- how to put a robust one together and use it to make decisions
- how to monitor progress and cash flows in the business
It’s pretty comprehensive.
Participants can get assistance from me to plan the budget and review it as an extra to the course.
I always say that you are doing things blindly without a budget and cash flow forecast!
So, will a budget and cash flow forecast save your business?
I genuinely believe it will!
So what can I do now?
Book a 15 min chat to discuss how the Budgeting online course will help you create a budget that works for your business.
You’ll determine what revenue you’ll need to pay your staff, pay yourself and pay your expenses.
And you’ll have the cash flow to grow your business!
Click the link to get started! https://bit.ly/HPA15mCall
Steven Franks, Higher Purpose Accounting
This article was written by a Bx Member, and published by Bx.
It is just one of the ways in which we support our members to achieve success in their business.