How to prepare budget analysis for your independent business?

Cash is the main thing that keeps your business running. Cash flow is the way cash moves out and moves into your business. So, analysis of cash flow is a must to check the financial health of your business. It is a detailed study of the movement of money in the business. The goal of budget analysis is to know your financial position and maintain ample cash for smooth running of operations.

Simple steps for creating cash budget for the business of yours:

Step 1: Analysis of cash flow is known as cash budgeting. It is an integral part of a business’s short-term monetary forecasting plan. Make a rough estimate of the amount that you’ll earn this month. If yours is a new business, include the initial cash you require every month. You also need to add the number of sales you make each month.

Step 2: Determining the approximate amount of money that is about to flow out in a month is as important as important as knowing about the cash flowing into the business. You’ll have multiple expenses every month from vehicle expenses and advertising to buying new supplies and paying your employees.

Other than these constant monthly expenses, there’ll be occasional expenses such as purchase of computers or construction work after a disaster. These are larger expenses and you never know when you’ll face such a situation. So, you need to keep money aside for sudden expenses.

Step 3: You need to ensure that the cash flow into the business is greater in amount than the cash flow out of the business. In simple terms, your income has to be more than your expenditure. Only if the cash inflow per month is more than the cash outflow, you’ll be left with sufficient cash for operating the company.

Step 4: The ending balance of one month is the next month’s beginning balance. As the business grows, you many require to include more items to the cash flow data. You have to figure out the minimum cash balance that you must have with you every month and progress accordingly.

Step 5: In case the cash flow is negative in any month or if the expenses exceed the income, you are left with only one option. In that type of situation you have to borrow some money from friends, family, investors or any financial institution such as a bank. If you have savings it can be of help.

After you’ve arranged the money, sit with the budget analysis of previous month and find out in which areas you have spent the extra money. This will enable you to earn profit and turn the cash flow to positive. This is when you repay the money you have taken as loan.

Conclusion:

The bottom line is to avoid borrowing and always keeping the inflow of cash greater than the outflow of cash. Only then you can be in a secure place. Remember that your cash budget should act like a forecasting document for you and therefore, follow it closely.

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