What their plan should include
You decide how detailed your cash flow plan or Cash flow plan really needs to be. Many companies, especially small ones, first make a rough estimate of how much money will be needed for the company's activities in the near future - usually the next 3 - 6 months. As a first step, it is sufficient to compare the expected payments into your company account with the planned expenditure. However, if your company grows and you have employees, your budget will be divided into several groups. On the one hand, there are the details of incoming payments and, on the other, outgoing payments such as personnel, marketing, licenses, etc. Here are 3 tips for planning!
Turnover (or incoming payments)
Turnover or sales forecasts are usually based on assumptions about your expected "normal" sales performance and the effectiveness of planned measures to increase sales. There is often discussion in the field about the impact of payment terms and defaults. We recommend a pragmatic approach. Start with an estimate and refine it over time. The combination of planning and monitoring leads to deeper insights and thus your planning assumptions usually sharpen on their own.
Costs (or outgoing payments)
can be divided into three groups:
- Fixed costs are items such as rent, salaries and financing costs
- Variable costs such as raw materials and the purchase of services
- One-off capital costs - for example, purchase of computer equipment
It can be helpful to look at last year's records and perhaps also contact your suppliers.
But what their cash flow plan must include
The expected cash flow on a monthly basis. Based on the above level of detail, you distribute the expected inflows and outflows over the future months. By comparing the cost budgets and turnover expectations on a monthly basis, you get the monthly change in your business's cash.
Budgeting is crucial for small businesses as it can highlight potential difficulties. Budgeting should be reviewed at least monthly.
Also use cash flow planning to better understand your own priorities. Is the focus on increasing turnover? Is the focus on cost savings? Planning helps you to set priorities, make better decisions and systematically strive for success! Because success can be planned!
Credits: Photo by Icons8 team on Unsplash