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Budgeting Essentials Blog

Helping you master the practical essentials of Budgeting, Cash Flow, Accounting and Debt Relief.
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ENTREPRENEUR: Do you have a plan for your business Cash Flow?

Failing to plan properly is another financial reason entrepreneurial businesses fail.  This sounds like a non-financial reason, but failing to plan properly has big financial consequences.  If you don’t take the time to develop a well prepared budget, you haven’t properly planned the finances of your business. Learn more in this week’s blog.

 

When planning for your small business, it is easy to become task oriented with  marketing, mission statements and new equipment.  But one of the most important steps in business is your budget, planned by you.

Budgets are basically the financial plan for your business.  A budget shows you what you can spend.  A budget shows you what revenue you think you are going to have for the year.  A budget shows you where you may have potential cash flow issues in the year.  A budget gives you a guide so you know when you are off track and off plan.

Why do people struggle with preparing a budget for their business?  One reason is that when you go into business, you may think that your business is just delivering the service or product that you sell.  You are usually pretty good at that and it is part of the reason that you went into business in the first place.  You don’t see yourself in the “bookkeeping” business.  That’s okay, it is more important to see yourself planning how your business will prosper.

By ignoring the financial planning process for your business, you blind yourself in the area of profit.  Properly preparing a budget involves digging into your business to understand how it is operating financially.  By taking an hour or so to see and study how and when monies come into and leave your business you do yourself a huge favor.  This knowledge keeps you on top of your game!

Done right, a budget gives you an opportunity to review what you are doing and think about whether this is the best way to do it.  You can review your vendors for pricing, your staff for inefficiencies and your customers for payment issues.  Once you know which areas need help, you can focus on each area one-at-a time to achieve resolution.  A budget pushes you to strategize.

Monthly financial statements are the score board for your business.  Budgets are the game plan for your money.  When your budget reveals a miss match between expenses and revenues, your strategy is to find ways to cut costs and/or increase sales.  Your budget can reveal a period where your cash projections show that you are not going to have enough money to cover your expenses.  This gives you an opportunity to make arrangements ahead of time rather than go into panic mode because you don’t have the money you need to cover your costs.  This is what strategy is all about, making plans ahead of time to overcome potential problems.

Budgets are a tool for all business owners, don't just rely on your bookkeeper to do budget management for you.  Most employees work for a paycheck.  You work to keep your business alive!

Expanding your business too fast without good budget projections is another planning failure.  It is easy to get caught up in the excitement of taking on something new, without realizing how much time, money and energy it takes to expand.

Most people like making more money, so expansion can be great for increasing revenue.  But without a budget, you are not adequately planning for increased finances.  Just like creating an annual budget gives you the opportunity to think through the coming year, using a budget as part of expanding your business gives you structure to build your expansion upon.  Making more money will ultimately require more resources.

Using a budget will help you see what effect your potential expansion is going to have on your finances.  How will the expansion costs affect your cash flow?  Is your expansion going to take some time to get rolling?  Are you taking on new staff that needs to be paid while they are getting up to speed and learning how to do things your way?  Even the best employee has a learning curve and may need to develop relationships with customers before they start bringing in additional revenue.  You'll likely require more from your vendors.  Can they handle it?  Can you negotiate a discount for ordering larger quantities from them?

Using a budget for an expansion will allow you to see the financial effects of the expansion.

Small business owners are naturally optimistic about their business.  That is part of what allows them to take the risk of being in business in the first place.  But that optimism can work against you also.  If you are too optimistic when you do your future projections, you can get yourself into financial trouble.

When you are doing financial projections, you also have to look at worst case scenarios so you are properly prepared financially for what might happen.  This doesn’t mean that you are expecting that worse case to come to pass.  Typical results are somewhere between optimistic best case projections and pessimistic worse case projections. 

But when you have prepared financially for that worst case scenario, you have created a buffer that allows you to concentrate on running the business instead of trying to figure out why your optimistic projections are off.

You can work toward your goal, the optimistic projection, but be financially prepared if your projections are off.  Your business will be better off because you took the time to develop a well prepared budget, with a result that falls in between the best-case and worst-case scenarios.

Sign up for my weekly blog which provides you with weekly tips for preparing a good budget for your business.

To learn more about cash flow and budgeting, sign up for my upcoming free online Cash Flow Workshop HERE.  I will email you when the next workshop is scheduled to begin as well as sending you a link to each new weekly post in the Budgeting Essentials Blog! I will be teaching my Cash Flow Workshop soon, so don’t miss it!

If you know someone this post will help, please share it with them!  Then scroll down to the comments section and leave me a comment on this post.  If you aren’t already a subscriber, SIGN UP to receive blog notification emails and information on other promotions! 

God Bless your week!

Copyright

© 2019 Dan Heiland 2019 Kat Heil, LLC

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