Cash Flow Forecasting
Many business owners fail to spend sufficient time on preparing budgets and instead get too wrapped up in the day to day operations of their business. Despite budgeting being a time consuming process, it is time well spent as it ensures a greater understanding of the business by forcing managers to review their area of responsibility.
Budgets can be used to set targets within an area of the business which in turn could have a positive increase on efficiency and profitability and will also help to make maximum uses of resources within the business.
Depending on your type of business you may have different types of budgets – sales, production, wages, capital expenditure and of course a cash flow budget (forecast) which will be used to identify cash shortages or surpluses so action can be taken to avoid getting into difficulty.
If you are a start-up business you may have difficulty in anticipating future income and expenses as you don’t have a lot of past information to go on, but it is still good practice to get into the habit of producing a budget, reviewing it against actuals and amending where necessary. By reviewing actuals against budget it will give the business owner or manager a greater understanding of for example where different income streams are coming from and or the expenses are identified.
Xero software has built-in budgeting and cash flow forecasting tools which we can advise on the use of, alternatively for more in-depth analysis you may wish to use one of the many add-on partners that works with Xero. Contact us for further help or support with your budgeting or forecasting requirements.