Cash flow Management & Budgeting

Cash flow Management

Cash flow is the life blood of all businesses and is the primary indicator of business health. It is generally acknowledged as the single most pressing concern of most small and medium sized businesses. In the present difficult economy where access to funds is restricted and difficult, cash management is critical to survival.

Basically cash flow is the movement of money in and out of your business; it is not profit and loss although trading performance will have an impact on cash flow. Cash flow is real and must be monitored and controlled.

Cash flow management is about balancing the cash coming into the business with the cash going out. The danger is that demands for cash can arrive before the cash you are owed is collected. If your business is trading profitably then you would expect that more money is put back into the business than is taken out. This is not necessarily the case and if you do not carefully monitor cash flow and take corrective action when necessary your business may find itself in trouble.

Cash flow management is a vital business process and should form an integral part of your business management structure. To manage cash flow effectively requires information on key elements of your business:

Cash Inflows

Money from the sale of goods and services to customers, cash or credit;

Money due from customer accounts;

Credit terms given to customers;

Bank loans or bank facilities available;

Sources of other income.

Cash Outflows

Payments due for the purchase of goods, services and overheads;

Payments due for wages, including tax deductions;

Payments due to government e.g. VAT, income/corporation tax;

Level of stock required;

Purchase of fixed assets;

Costs of finance

To obtain information on the above elements not only requires the maintenance of up to date and accurate financial records but also requires carefully thought out budgets for income and expenditure and cash flow forecasts.

Having a clear view of where your business' cash is tied up, e.g. stock, debtors, and what cash commitments you have coming up helps you to

  • spot potential cash flow gaps and act to reduce their impact.
  • Plan ahead allowing you to make investments knowing that existing commitments will be met.
  • Reduce dependence on bankers
  • Identify surpluses that could be invested or used to pay down other debt quicker.
  • Provide reassurance to bankers and suppliers that the business is healthy.
  • Provide assurance that your accounts can be prepared on a going concern basis.

With our experience we can assist you and your business to maximise and control your cash flow management. We can assist with the setting of realistic budgets, based on your plans for the business and cash flow forecasts to determine when there will be the greater need for cash so that plans can be made in advance to meet that requirement. We can also review your cash management procedures to improve your cash inflows by reviewing your terms of business, billing and credit control procedures.

Our assistance is aimed to put you in control of your business so that you can plan for the future instead of fighting to survive.

Cash flow management is critical to any business and an integral part of the process is the setting of realistic budgets based on the plans over a period of time. A budget is a statement of the revenue and expenses that a business expects to experience over a particular period of time. It is a plan to control expenses and ensure that there is enough money available to finance current commitment and future projects.

There are 4 types of Budget:

  • Operating Budgets are based on eth money a business needs for its day to day activities
  • Flexible budgets allow for changing business conditions
  • Objective based budgets are driven by the objectives set by the company and the business plan
  • Capital Budgets account for the amount of cash available for capital expenditure

Budgeting is usually done on an annual basis as part of the business planning process however there should be some degree of flexibility which allows for unplanned expenditure to enable the business the take advantage of new opportunities which may arise. This leads us to eth fact that Budgets not only need to be created, they also need to be monitored and managed.

Cash flow management & budgeting are inter linked and vital processes for the management of all successful business. Careful tracking of cash flow is important to highlight any variations against the original plan. Once problems are identified actions can be taken to resolve them. In addition is a business knows exactly where its cash flow stands then it knows how much money it has available at any given time and can confidently refine its business plan to invest in new activities if the opportunity arises.

Without a budget a company would be working blind with no knowledge of whether they can afford to pay tomorrows invoices or could be taking on new commitments without knowing whether or not they can really afford to pay for them.

The benefits of budgets are far reaching. They allow money to be managed effectively which in turn improves decision making, resources can be allocated appropriately to projects, with eth highest priority, and performance can be monitored to identify and respond to problems before they occur.

If you need assistance in the setting up on monitoring of budgets for your business or in the management of your cash flow, you can benefit from our extensive experience.