Cash Flow Budget – The Success factor in Your Business
The forecasting of cash flow and the reporting of the actual cash flows of a business normally go hand in hand in a business. This is very important for the financial success of a business as well as the corporate survival. So, a good cash flow budget is the core aspect of the business. The key aspect to be considered here is how you can succeed in the world of today if you do not have a financial plan in place. A lot of people confuse this with the fact that they feel that their cash flow plan has to be minute to be accurate. But the reality is this is far from true, as it can be incorporated on a spread sheet, a piece of paper as well as on a computer. The only point of consideration is that you should have one in the first place.
Importance of cash flow mojo software to establish a cash flow budget for the business
For the accurate analysis of the cash flow budget, this software has a building tool which is pretty simple to use. It goes a long way than the average cash flow statement. If things could be put in the right perspective, it is an automated budget tool. Most of the business owners tend to panic when they hear the term budget and believe it is tightening of the screws and coin the situation to be one where no sort of fun can be had. It is however not the right definition of the term budget, as it is much more than just that. So what is the cash flow budget? It means the amount of cash which is required to pay off the debts, to pay the current as well as the past bills, raising the amount of anticipated expenses and getting into more and more cash outlook so that the business horizon is widened. In short it is a situation where the company needs each and every week to break even in terms of sales. No one enters into a business to make their suppliers do better. In other words, this could also be referred to as income budget planning in a way. This helps the business owner to develop an accurate plan and align with the income budget of the firm
How to use the cash flow analysis effectively
To manage the cash flow budget involves a series of steps in a systematic way. First of all, one needs to prepare a list of items from which revenue can be expected. For example if your customers pay in 45 days then consider it as preparing forecasts. Secondly identify other forms of cash receipts if there are any. This may be proceeds from the bank, bank loan as well as deposits of the customers. In the cash flow budget, do not include non cash expenses like depreciation. These sorts of expenses have a profound impact on the cash outflow, but tend to be included in the expenses as well. Once the cash plan is prepared it is better to discuss the same with other members of the staff so that they can contribute to the overall achievement of it. On the other hand, one can review it with the account advisor as he has a thorough understanding of it, and can provide valuable inputs in this regard. In the midst of this, do not expect your cash flow budget to be successful in the very first few months. The trick here in this regard is to review the performance monthly and take corrective action in this regard. It is necessary to alter your cash flow budget when an unprecedented change is about to happen. This may be sale of equity or some such big sale that is about to happen. In a way one should update their cash flow budget on a regular basis to reflect the changes that are expected to increase or decrease the cash flow. The key factor to understand is, whether the balance between the budgeted as well as the actual equals to the amount you had budgeted earlier. The point to be considered is whether it is something you can afford considering your present as well as future cash position.
Why budget is necessary?
Cash Flow Budget – The Success factor in Your Business
The question one needs to understand is why a cash flow budget is needed in the first place. This is important in developing budget software, as all the shortfalls can be removed to a considerable extent. Quite a few reasons could be attributed to it. In hindsight, it helps the managers identify the possible loopholes which may arise in the business in the future and take corrective action in the future. On the other hand it also encourages coordination between the various departments in an organisation for the achievement of the objectives of the business. In a way it contributes to the improvement of the relations between the various departments in an organization. Some other important aspects of budgets are as follows
- Helps in better control of resources
- Better communication channels are established as it helps the various plans to the responsibility managers.
- To motivate the managers to achieve the goals of the company. This means the budgeted goals in fact
- The performance of the managers are also evaluated on a constant level
- Enhances the performance of the business and increase the visibility factor on all counts
