• Five Key Elements of Creating a Cash Flow Budget

    in Cash Flow & Forecasting on June 13, 2019

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    How do you create a cash flow budget for your small business?

    It’s easier than you might think. Here are the five key elements to get it done.

    Cash flow is the lifeblood of your business. And not knowing what your future cash flow can keep you up at night. Financial forecasting and creating a budget for your cash flow can be one path to getting a good night’s sleep. Having a cash flow budget allows you to plan for both long-term and short-term expenses and to make sure you have the financial resources available to meet your current obligations while you’re growing your business.


    Whether you own a law firm, marketing agency, architectural or graphic design firm, construction business, handyman service or photography business—no matter what your small business does—every penny counts.

    So, here are five key elements to creating a cash flow budget for your small business.

    1. Get your ducks in a row. The first step to creating a cash flow budget is organizing your business’ financial reports. You need up-to-date income and expense information from your profit and loss statement. You don’t need your balance sheet—the cash flow budget is strictly about dollars in and dollars out.
    2. Project your collections. What accounts receivable do you expect to come in for the period of time you’re creating your cash flow budget? Be realistic. If your terms are Net 30, but you have several customers that tend to pay within 60 days or more, don’t count your proverbial chickens too soon.
    3. Project any additional anticipated cash flow. Do you have new projects or clients coming on board that will result in deposits paid up-front? Are there any other sources of incoming funds?
    4. Add up what’s going out. If you have a history, take a look at both your fixed and variable expenses from the previous period you’re creating your cash flow budget for. Don’t include any expenses that aren’t set in stone, such as a piece of equipment you’re considering purchasing. You’re only looking to get a handle on what your actual expenses will be. Don’t forget to include any accounts payable that will be coming up in the months you’re including in your budget.
    5. Do the math. Once you have these numbers popped out, a picture of your cash flow budget will emerge. Hopefully, it’s a positive picture. If it’s not, don’t panic. At least you know what you’re up against and you can adjust your strategy. How much do you need to reduce your expenses or increase your sales to get a positive number? Sharpen your pencil, and figure it out.


    Look to the future

    Now that you have examined your situation, it’s time to look to the future. What may be on the horizon for your business?

    • Do you plan/need to bring on new employees in the coming period? What will that do to your payroll expense?
    • Is your business seasonal? How will the season you’re heading into impact your cash flow position?
    • How much growth do you anticipate in the next period, and how will that affect your monthly/quarterly/annual revenue and cash flow?
    • Do you anticipate rent or general overhead expenses to increase (or decrease)?
    • Will you be paying yourself or key partners/employees more? Can you afford to?


    Depending on how new or established your business is, your cash flow budget may be more or less detailed and sophisticated. You might be tracking all this in a spreadsheet. You might be scribbling all this on a cocktail napkin. No judgement here. The most important thing is that you’re thinking about cash flow.


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