As a business owner, it’s essential to the success of your business to manage your cash flow and prepare for the future through budgeting and forecasting. It’s important to understand what budgeting, forecasting, and cash flow are, and the role each activity plays in maintaining a healthy and growing operation.
Budgeting for Your Business
A budget is a financial picture that typically covers a 12-month period. It’s used to determine what you can expect over the course of the year factoring in the operational activities that you are implementing or anticipating.
Budgeting allows you to look at what you have planned for each month versus what actually took place so you can monitor your progress throughout the year. A budget will examine overall revenues and expenses.
Forecasting for Your Business
Forecasting is similar to budgeting, but it encompasses a longer timeframe – typically three or even up to five years into the future. Because it allows you to look ahead, you have the opportunity to plan for different scenarios and compare the impact of different decisions you may be considering.
Forecasting gives you a bigger picture of the financial future of your business and shows how operational changes might affect it in the long term. It helps you make the best decision possible based on your goals and anticipated revenue and expenses.
Managing Your Business’s Cash Flow
While budgeting and forecasting offer insight into overall revenues and expenses, cash flow management focuses on the actual movement of money in and out of your bank account. Your budget might place an expense in the month that the item is purchased, but your cash flow will place the amount in the month when the money actual leaves your bank.
Monitoring your cash flow can help you decide when the best time to make payments or collect funds is. A cash flow will also identify when you will likely need an overdraft and how large it will need to be in order to avoid cash flow issues. Does it make more sense to pay a bill when it is due rather than when you receive it? That depends on the timing of money coming in and other expenses you have.
Your Trusted Advisor
Your business may benefit from advisory services like budgeting, forecasting, or cash flow monitoring to help set you on the best path. Learn more about KWB’s ONSight Advisory services here.
KWB strives to keep our clients informed of news that could affect their business and livelihood. To become a KWB client, visit www.kwbllp.com or call us at 780.466.6204.