A budget will predict your sales, your direct costs and overhead expenses and therefore your net profit. However, it will not predict when any cash payments will be paid, nor when your sales and other income will be received in the form of cash.
The tool that will enable you to estimate whether you will have sufficient cash to operate your business over a period of time is your Cash Flow Forecast. This is simply another budget that estimates what cash you will receive and outlay in short time spans. The cash flow forecast will project your cash position at certain time intervals and allow you to manage your business transactions more effectively.
We will work with you to determine how much working capital you need to enable the cash to flow freely enough for you to operate your business effectively.
Many business owners make the mistake of discounting or running sales, in order to increase cash flow during critical ‘cash crunch’ periods. We will work with you to help you understand why this is not a viable option for the long-term profitability of your business, and help you to develop a working cash flow forecast to ensure your business is adequately funded year round.
