Why are Budgeting and Cashflow Forecasting important for your business?

Thinking about growing your business?

Before anything else, you should consider the importance of budgeting and cashflow forecasting!

Predicting the financial future of your business is not easy, especially if you’re starting a business and don’t have experience in that field. Budgeting and Cashflow Forecasting are methods of analysis used to help a company plan and reach its goals.

Budgeting is the process of planning your business revenue and expense figures for a specific period.  This is important because it helps you control your spending, track your expenses, and save more money. Additionally, it can help you to make better financial decisions, prepare for emergencies, get out of debt, and stay focused on your long-term financial goals. Budgets should always be as detailed as possible. In general, the budget should include the following information:

  • All planned revenue—including the types of revenue, value, and when to expect it.
  • Fixed costs for your business (employee salaries, rent, utilities, insurance, property taxes, etc.)
  • Variable costs (supplies, travel and vehicle expenses, professional services, maintenance, etc.)

A Cashflow Forecast is a plan that shows how much money you expect your business to receive and pay out over a set period. It can help you plan how much you expect to make in sales and spend in costs. It can also help you understand when money will enter and leave your bank account.

Cashflow forecasting should always precede the budgeting process to ensure spending is in line with factors that can impact overall financial performance. Those who create budgets without Cashflow forecasts are at risk of overspending and not having enough available cash for unexpected costs or shortfalls in revenue.

As you progress through your budgeted period, you should update your forecasts periodically as soon as your latest actuals are confirmed. This will give you a clearer picture of how your business is performing against your budgeted goals.

Budgeting and Cashflow forecasting enables you to have strategies, plan and align your goals across the entire organization. Both processes are crucial components of every company’s growth journey. These two methods work together to empower your business. This ranges from recruitment and brand development to everyday expenses such as travel, petty cash purchases, etc. It is not a case only of saving, but rather the thorough understanding of how your finances are used today, tomorrow, and over the following months.

 

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