This is a VERY brief post to touch on the subject of budgeting and cashflow forecasting. I could write an in-depth article on this, or a small course, which I still may, but for now here are some quick suggestions on budgeting and cashflow from my years of accounting experience which hopefully might be useful.
A good way to do a budget if you have any financial history is to print out or export to Excel the profit and loss report by month for the last 12 months (or however long you’ve been in business if it’s less than that). This way you will make sure you capture all expenses and categories of the business.
See what you are spending on expenses on average per month. Or for any type of business that is seasonal look to see which months have higher income and expenses so you know to budget for the variation in the upcoming year.
Direct costs (costs of goods sold) are often best budgeted for as a % of sales based on past history and information about future costings (you may have negotiated a better rate with one of your suppliers for example).
Expenses will often be more static, except for things like wages if they relate to sales in any way.
Budgeting can be a bit of an art form and is really a best guess but if based on historical data has a greater chance of being fairly accurate. It’s good to review and revise regularly. It can also be good to be quite detailed depending on your business and how you currently account for things.
For new businesses you will likely still have cost of goods sold as a %, and you will know what most of your fixed costs will be. Really good to factor in a buffer. Things often don’t go according to plan and good to know there is some wiggle room when it happens.
Bear in mind that a cashflow forecast is different from a budget as it is cash based vs accrual based. Both need to be closely monitored for different reasons.
I have really just touched the tip of the iceberg with this topic and there is so much more that we could go into. If anyone is confused about any of this or wants some help creating a budget or a cashflow forecast let me know.
Stephanie
0800 HEADSPACE
