3 reasons a cash flow budget will make running your business easier

One of the key areas I always look at when I work with my clients as a business advisor and CFO is their cash flow!

Cash flow is vital in a business’s health and so today I want to share what a cash flow budget is and why having one will make running your business easier.?

So first of all, what is the cashflow budget? And why is that different?

A cash flow budget takes into account not just your expenses, but any other kind of withdrawals that are coming out of your account, e.g. loan payments that are not an expense. Typically you only see the interest as an expense but you will also have the principal payment going out to which needs to be attributed for. Also taxes! A lot of businesses don’t account for their tax saving payments when they look at their expenses and this is a big one when it comes to managing your cash flow.?

I have a formula that calculates your taxes and what they would be based on this cash flow budget. So you can account for that.?

So in essence a cash flow budget puts together all the cash that’s going out of your business and that allows you to see how much cash you need every month to keep your business afloat. Why do we need to know this?

1/ You’ll know how big your net is. What is your net? That's the amount of revenue that you’re going to need every month to at least break even. When we know this figure we then know exactly how many more sales we need to make if we’re falling short.

2/ It helps keep your spending under control. It can be easy to look at the revenue coming in and think that your profit is also growing and then start to overspend. But when you know your cash flow figures as well then you can make sure to check it and see if there aren’t any additional expenses coming out that might cause issues. This is especially true when we have staff making spending decisions that we’re not always aware of until later, such as ordering supplies.?

3/ It helps raise flags. Often when we look at our numbers only every quarter or more often for most CEO’s every year, that means we are too late in catching issues. By having a monthly budget that we check in with we can spot issues early on and make the decision as to whether you need to pull your CFO in to take a deeper dive into what’s going on, especially if your numbers and net profit seem off. If you have a good CFO on staff or as a consultant they should already know why any issues are coming up and be able to offer solutions.?

Interested in finding out more about how to create a cash flow budget for your business? Reach out and let’s chat. I’d love to support you make your business vision and growth a reality!