The benefits of your cash flow budget flow through onto every area of your business.
By way of definition, your cash flow budget is a budget that forecasts then records cash that goes in and out of your business
A cash flow budget is a central piece of the architecture that makes a business successful. Your cash flow budget plans and then records the cash coming in and flowing out of your business which you then you to determine your current cash position and compare it to where you thought you would be.
Your cash flow budget is only useful if you decide to make use of it. The best way of doing this is to plan and block out times where you review it either with your business partner of a trusted advisor like an accountant or external CFO.
1) Having a documented plan, not gut feelingDon’t get us wrong, gut feelings are important in business and sometimes they need to be listened to, but they also need to be balanced with material facts.
Gut feelings can give you vision and direction, but that vision and direction needs to be backed up with a material plan. That material plan is your cash flow budget.
When you are running a business there is a lot of ‘noise’ during the busy day-to-day operations of your business. Sometimes it is hard to cut through that noise and get a clear picture of what the real situation is.
Your cash flow budget cuts through the noise. It tells you what the real situation is in your business.
2) Opportunity to review bigger picture
When Day-to-day work when you are running a business is very busy. Even the most organised business owners are unlikely to have their day go exactly how they thought it would when they step into the office in the morning.
While you can never make business totally predictable – and it would probably be less satisfying if you could – what you can do is set aside time to work on your business not in your business.
When you have a cash flow budget, you need to set aside that time to review it. If you don’t review it there is virtually no point in even having it.
You should review your cash flow budget with someone else, whether they are a business partner or someone like an external CFO.
When you plan out that time to meet with someone and set that time aside, you are forced to actually look at the big picture.
3) Ability to make short term decisions
The short term decisions you make should be based on your current cash position. Your cash flow budget will illuminate for you what your position really is and how it is tracking against your targets. This is one of the key benefits of your cash flow budget.
Therefore, having an idea of not just how much cash is in the bank, but how you are tracking against forecasts and what the implication of that is for your business will help determine what decisions you actually make as a business.
If things aren’t going according to the plan positively, it might be time to invest more.
If things aren’t going to plan in a negative manner, it might be time to pull back.
Please don’t hesitate to reach out to us if you would like help with your cash flow budget.I’m interested in CFO help