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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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National Small Business Week - Got enough cash?

One reason small businesses fail is that they don’t have enough money to get themselves through the start up period.  You need to properly anticipate how much money you are going to need to get your business off the ground. Learn more in this week’s blog.

When you start a new business, there are many things that will need your attention. Many of them have a price tag that goes with them.  If you don’t anticipate these costs properly, you can run short on operating cash quickly. 


As you are getting ready to open your doors, one thing that you want to get done sooner than later is your initial budget.  While the budgeting principles are the same, there will be some differences in the content that you need to be aware of in your initial budget. 


You are going to have start up costs, many of which will be one time or annual costs. Some of these include business licenses and permits. You may need furniture or fixtures for the business. Computers of some sort will be necessary. These are all things that take money that you need to be aware of right away.

Another thing to be aware of is how cash normally flows in your type of business.  If your vendors require you to pay when you purchase from them, but your customers take 30 days or more to pay you, are you going to have funds on hand to cover that difference in timing? 

VENDORS:

Choose vendors that provide you with quality materials and service.  Establish a working relationship with them that develops mutual trust and respect.  Use the same standard with them that you want to have with your customers.  If you expect to be paid right away, treat your vendors the same way.  This shows your vendors that you value them as a partner in your business.

CASH BUFFER:

Having a cash buffer will help you through your start up period.  Just like with personal finances, the recommended buffer to have on hand is six months of expenses.  This allows you time to get settled in and helps you with unexpected expenses and revenue fluctuations. 

REPLENISH:

Your cash buffer is not just for start up.  Whenever you use these funds, you need to replenish the funds as soon as possible after you use them.  This way you have the funds available the next time you need them.  You also need to remember that as you grow, the size of your buffer also needs to grow.

SIZE:

A great time to evaluate your buffer fund is when you are preparing your annual budget.  While you are looking at your upcoming finances you will have a good sense of how big your cash buffer needs to be.  This is another way of ensuring you have a well prepared budget for your business.


OPTIMISM VS. CASH PROJECTIONS:

Part of starting a small business involves being optimistic about the future and your ability to make money.  Optimism is a needed characteristic for a small business owner.  But to keep your business growing, you need to set that optimism aside when you are doing cash projections.  You need to examine what cash you may need if your revenue projections don’t come in at the levels you expect. Cash projections require brutal honesty.

 

There are many factors that you don’t have control over that could affect your business.  So when you are doing your cash projections, cover yourself for those factors you can’t control.  This way you will know how much money you should have on hand in case you need it! 

Once you know that number, make sure you do everything you can to fund it.  This way, your business won’t be one of those that fail because you didn’t plan your cash properly.

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God Bless your week!

Copyright

© 2019 Dan Heiland 2019 Kat Heil, LLC

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