As an entrepreneur with four businesses, I have found that the most important tool to ensure that my businesses are running smoothly is the use of cash flow budgeting. If you don’t budget to ensure that you have enough cash, how can you ensure that all of your outgoings are paid?
Here are five important components of using cash flow budgeting:
1. Budgeting for your proposed revenue: Depending on your business, this can be a weekly or monthly proposal. For instance, for my hair salon (Image at Katan) and beauty salon (Beauty at Katan), the incoming cash flow is reviewed on a weekly basis as it is the type of industry whereby last-minute bookings occur. On the other hand, my minute-taking businesses (The Melbourne Minute and The Minute Taker) receive the majority of bookings months in advance, which means that the budgeted cash flow only needs to be reviewed monthly.
2. Maintain a cash balance: Just like a float that sits in the till of a retail store, every business needs to maintain a cash balance in their accounts to ensure that when an unexpected expense takes place, you have the funds available. Unexpected expenses could be anything from machinery breaking down to advertising costs on a slow week.
3. Pay your taxes and employees’ superannuation monthly: In today’s market, with higher than usual interest rates, you never know when consumer confidence may affect your business. I used to pay all of the superannuation and tax expenses quarterly, however, in 2023 changed this to monthly as it gives me a more accurate snapshot of how much cash my businesses are holding and generating.
4. Be nimble: An ever-changing economy means that you need to ensure that you are running your business on a month-to-month basis. And by that I mean, ensuring that you know exactly what expenses you are incurring, not being afraid to question bills, understanding what has made your electricity spike up, and looking around to see if you can find a better deal on your security expenses. etc. Understanding your profit and loss statement is integral to knowing exactly what is occurring in your business on a daily basis and having the ability to reduce your overheads when they are no longer required.
5. Cash is king: When interest rates increase, businesses’ profits are eaten up. It is imperative that all business loans are paid off as quickly as possible to ensure that your profits can be redeployed into other areas. Having the cash available to try out new business processes, software, products, and even marketing initiatives means that you are always investing in your business’s future.
While adopting a cash flow budgeting approach may seem like a big step initially, it does result in reduced stress and a better ability to be nimble and plan for slower months when they occur.
