Do you have too much month left at the end of the money?
Wouldn’t it be good if there was always enough cash to pay the bills and have a buffer left over? Cash-flow management for many people in business seems like an unattainable goal. In a nutshell, cash-flow management refers to your ability to manage the level of cash coming in, going out and what is available for your operational and lifestyle goals. Taking control of this unwieldly beast requires a plan!
The B-word. Budget
This is critical. Having a budget in place allows you to anticipate the future cash needs of your business, and surprisingly, it’s something a lot of business owners don’t do. Not having a budget often leads to frustrating questions and comments such as ‘where did the cash go?’. Business owners often operate on default; getting by on a gut feeling and best guess. Setting a budget is a great habit to get into and can save you the stress of having to deal with unexpected cash outlays and bills, particularly tax bills! It also allows you to factor in your hopes and dreams…whether it be holiday time or that new Mercedes!
Setting a budget can be one of the most powerful things you can do for yourself and your business, particularly when you set yourself some goals as part of the process, for example growing your revenue, increasing your gross profit or reducing unnecessary expenditure. Having a budget also helps to shine a light on other aspects of your business. It may begin to give you a feel for what areas of your business are more profitable than others and provide you with powerful financial information to support your decision making.
Many people view budgeting as a set-and-forget process. However, operating in an ever-changing business environment means that your budget is something that should be re-assessed regularly to ensure it’s valid and useful. Many accounting software programs such as Xero allow you to enter a budget for the financial year and compare it to your actual results. This helps by giving you real-time information about whether you’re achieving your targets.
Set yourself up with a budget, hold yourself accountable to reviewing it regularly and your cash-flow stresses may start to become a lot more manageable. Some of the benefits of having a budget include:
- Anticipating when large cash outlays are required
- Becoming clearer on who owes you money and when you can expect to receive it
- Keeping creditors under control and using payment terms to your advantage
- Being aware of your tax obligations and putting money aside to pay them on time
- Keeping you and your bank happy by showing how big an overdraft may be needed and when it peaks.
- Knowing if/when you can afford large capital expenses
- Forecasting if/when you may need additional support or employees
- Becoming clear on whether you are making a profit
- Being aware of whether you need to increase your prices
Accru can assist clients with strategies for cash flow management as part of our accounting and business advisory services. Please contact your local Accru advisor for assistance in this area.
With offices in every capital city and experience spanning over decades; Accru’s partners know the ins and outs of running a business. If you need help with your personal or business finances, contact your local office today!
