In the world of business, profits are the ultimate measure of success. Investors look to the financial statements to find the story of how the company performed. Projected financials are also important. If you don’t know how to create financial statements you need to find someone that really and truly knows how to. Like an accountant. The importance of an accountant goes beyond just preparing your taxes. If your only utilizing your accountant for tax purposes, then you not tapping in to the real values. Your cash flow budget is one of the most important financial statements you have. Done correctly, it provides your business with the necessary checks, balances, and financial controls to guide performance, win bankers’ hearts, and keep spending and investment impulses in check. Developing a budget is simple, and when created with solid sales and expense forecasts in mind, you can ensure that your budget will stand up to the daily demands of your business. Here are some steps you can take to create a cash flow budget you can rely on: From “Financial Troubleshooting,” Inc. Magazine, August 2000, by Michael Pellecchia Set business guidelines and goals.
- Review current economic and business conditions; consider how they will affect your business.
- Forecast sales for the budget period.
- Forecast expenses for the budget period.
- Prepare a profit-and-loss projection.
- Run a reality check on the numbers. Compare them to your goals, trade figures, and historical figures.
- Project monthly cash inflows for the budget period.
- Project monthly cash disbursements (outflows) for the budget period.
- Project operating data. Move controllable items around to achieve the best positive cash flow possible.
- Prepare your cash flow budget: the “finished”cash flow projection. Look for periods of negative cash flow, as well as unusually positive periods.
- Compare budgeted with actual performance monthly.
- Review performance and recast forecasts (both P&L and cash flow) annually or as needed.
How many business owners can honestly say they know how to do this?
And confident that they are doing it right?
Get an Accountant!