Money managing is a critical element of any business. Forecasting cash flow can ensure that you utilize the revenue from your business in the most effective way possible. It can also create a plan for unexpected expenses, preventing those disruptive scrambles for emergency financing. A few tips can help you to manage your money so that your business can take advantage of opportunities that often arise that can lift your business to a more profitable level.
- Review Your Financial History
The first step is to thoroughly understand how your business uses its money. Review the recurring expenses for the past two years. This information can tell you how money has come into your business and where the unexpected cash outlays occurred in the past.
- Assess Your Current Income
Take a close look at the amount of money in your business account each month for the past year. The peaks and valleys in this amount can indicate periods of higher financial outlay for your business.
- Evaluate Your Terms of Being Paid
Take note of patterns of payment. If you are a retail business, you most likely are paid immediately at the point of sale. Other types of business must wait 30 days or more for payment on invoices. The patterns may change over time and will affect your cash flow throughout the year.
- Estimate Future Expenses
Consider your goals for the upcoming year. Perhaps you are introducing a new product or service that will require additional marketing or staffing. These expenses should figure into your cash outlay for the next year.
- Create A Realistic Plan
Using this information, construct a realistic strategy for your business’s income and expenses for the next 12-month period. This plan should reflect past financial transactions, but it must also account for likely price increases or income reductions in the future. Your plan may also include funding from a line of credit for periods of lower income.
- Plan For the Unexpected
Smart business owners also pad their cash flow plan with additional money for emergency expenses. Forecasting cash flow with an emergency fund will allow you to respond quickly to any problem that arises so that your business can continue to function smoothly and without unnecessary interruption.
- Make Adjustments In A Timely Fashion
A successful cash flow management plan must be monitored closely to ensure it is adjusted for any changes that occur during the plan period. Neglecting this aspect of your cash management plan can lead to shortfalls of money that can slow your response to current financial needs.
Successful money managing is not unnattainable magic. It merely requires a clear understanding of how your business uses money on a monthly basis and a workable strategy for making corrections throughout the year.