Budgets: Part 4 - Cash Flow

Since our recent posts on budgets we have had many interesting questions presented to us. One frequent question is: How can you budget cash flow? We all know that cash flow is the blood of every business. Without adequate cash flow life can be the pits.

A quick recap on the definition of cash flow is the following: Money coming in from any source matched to money going out of a business. Do you have enough cash to pay your bills or are you short?

For over 30 years we have worked with many types of businesses. We have learned both valuable and painful lessons. One of which is the importance of: Developing a cash flow plan (budget) for your business. Then, at least on a monthly basis(for the current year) figure out what money is coming in and going out, account by account. Project your money collections and what money is being paid out to operate your business. Do they match? Are you short of money or have a surplus?

If you are a cash basis business, it's simple. Your money coming in should at least match the money going out. Is it enough to pay current bills or do you need to delay payment or borrow operating money?

If you are an accrual business and are having great sales that may not be enough to keep your business afloat. The fly in the ointment is... are you collecting your accounts receivable at least at a rate that you need to pay your bills which are your accounts payable?

A cash flow budget is a plan to collect money from sales which is then used to pay the expenses incurred while generating those sales. If you have a surplus of cash during business operations invest it. Eventually you will be able to draw on these funds during periods when cash collections do not cover your bill payments. Should your sales and collections of receivables not cover your bills to stay in business you will need to borrow funds. Most businesses need to do this from time to time.

Your life will have less stress if you have a cash flow budget. Your backers or banker will be happier to know that you have an understanding of when you will be short of cash, and when you will have a surplus. Figure it out and plan it out.

If you need help with budgeting cash flow, send us an email at either cdi@srv.net or snap@srv.net and we will send you some links, suggestions and possible solutions.

Budgets: Part 3 - Enterprise / Job / Projects

After our last posting of operational budgets for a business we received numerous calls and emails. Many of you wanted to know more about budgeting by different parts of the total business.

Great examples of budget needs for parts or areas of a business are the following:

• Agriculture - By crop or livestock operation, to a field level or farm.
• Agri-Business - By differing operations or locations
• Construction - By type of job, such as remodels, new homes, commercial
• Service Business - By truck, van, different communities, routes
• Consulting Business - By customer, marketing area or projects
• Software Developers - By project, product, updates or marketing area
• Web designers - By customer, web site, updates or maintenance
• Graphics projects - By customer, client, project
• Property Management - By apartment, rental building, etc.

Budgets can be developed either manually or with the use of software. Budgets that are part of the total operation are invaluable to achieve the goals or cost management of a business.

Remember, parts of the business make up the total business. If you can identify success or failures at the lower levels of a business you, the owner or manager, can make quicker adjustments in controlling costs, time, materials or the marketing sales price of your products.

This level of overview of budget vs actual for components of the total business is once again a proven method to a successfully run business.

Budgeting: Part 2 - Operating Budgets

Every business owner or manager wants to know how things are going during the year. For many the request may be about sales, costs, cash-flow or profits. Each are great indicators of what is happening in the business.

One guidepost generally overlooked is the actual for the year compared to what was planned or budgeted. Each business entity should seriously consider creating an operating budget for each year.

Your operating budget might simply be made up of last year's actual without changes or with modified numbers to reflect what you want your business to do this year compared to last year.

An operating budget plans for income, expenses, asset purchases, debt reductions, marketing, profitability and new business development (R & D). As the year progresses do a monthly or at least quarterly comparative of budget vs actual to see how your plan is working. Make changes and adjustments as needed.

Many software programs and some spreadsheets will help with planning, reviewing and tracking of budgets. Your accountant or bookkeeper can also be a great asset in this process.

Cash-flow tracking of budgeted cash-flow compared to actual cash-flow is invaluable for decision making. Cash-flow is the life blood of your business.