Proper Management of Your Business’s Cash Flow Is One Key to Success
Every business has cash flow, but not all business owners are good at managing it. This single characteristic can often be the most important factor in whether or not a business is capable of operating on a financially-sound budget. Those who lack cash flow management skills are often found closing their doors not long after opening them.
If you can make subtle adjustments in how your business operates, to where it can operate on a cash budget instead of relying on credit, then you might be able to increase your bottom line without having to owe anything to anyone. Here are three important tips to consider when creating a cash budget for your business.
#1 – Determine a Time Period for the Cash Budget to Cover
Cash flow can change due to a variety of reasons, so it pays not to try and budget too far in advance. But planning for a certain time period will be helpful in establishing and keeping to your budget. The length of time the cash budget should cover will be determined by the type of business you own.
Seasonal businesses may need to stick to shorter time spans, like one month at a time, while other businesses with steadier income levels may be capable of creating a cash budget for each quarter of the year, or even on an annual basis.
#2 – Determine Your Daily Cash Needs for the Covered Period
Look at your weekly and monthly expenditures to come up with a total for how much cash your business needs to have on hand to operate over the period your budget is being designed to cover. Every business has different needs. Take the time to go over yours, so you do not miss any critical expenses. Once you have your total, add ten or twenty percent to that number to help cover any unexpected expenses that may arise during your budget period.
#3 – Fine-Tune Your Budget Over Time
It is important to understand that your cash budget is not going to be spot-on right out of the gate. Developing an effective budget takes time. However, one way to help improve your chances of early success is to closely examine your sales and expense receipts from previous months.
Take a look back at your income and expenses over the length of time your cash budget is expected to cover, and see how your business performed financially. Look for ways to improve your cash flow, and build your upcoming budget based around what you find. Eventually, as you get more and more comfortable with making a cash budget, you will find yourself honing your budget until it is as accurate as possible.