No matter what industry you’re in or size of your business, your company will benefit from preparing and adhering to a balanced budget. This not only provides a yardstick against which to measure progress, but also requires you to be acutely aware of both the costs and potential rewards of implementing your ideas.
Start with a Budgeted Income Statement for each budget period, we recommend monthly. This should include revenue projections (the amount to be invoiced to customers during the budget period), the cost of sales or direct costs (costs incurred that directly relate to revenue) and any overhead costs or fixed costs (expenses that keep the business open).
These fixed / overhead costs can include: payroll / salary costs (and associated payroll taxes and employee benefits), occupancy costs (such as rent / mortgage, utilities, etc.), transportation & equipment costs (leases, fuel, repairs, etc.), office –related expenses like supplies, and so forth. Getting these itemized can be a critical step to understanding your overall monthly expenses.
Once the Budgeted Income Statement is complete, it can be converted into a Budgeted Cash Flow Statement. This is where you can get ahead of questions such as: Will my customers pay on time? When do my vendors require payment? Etc. This process will also provide key information from which you can identify upcoming cash flow needs, including when you’ll need to come up with outside financing. This, of course, gives you time how much outside financing id required, when it is required and, a repayment schedule that fits your business’ cash flow
We recommend taking a more conservative approach to cash flow budgeting. This assumes customers will be a bit late to pay you and vendors will require payment a bit faster than anticipated. By budgeting your cash flow accordingly, adequately plan your financing requirements in advance.
If you outsource your CFO function to Premiere Financial Consultants, we can work with you – no matter the size or maturity of your business – to create an efficient budgeting solution, allowing you to focus on what you do best. Click here to read more about our Outsourcing Services, and don’t hesitate to contact us with any questions.