Budgeting and Cashflow Forecasting

Budgets and Cashflow Forecasts are both essential for the accurate financial management of any business. It is important to utilise these effectively – forecasts and "what-if" planning scenarios help identify potential problems early so that you can prepare a contingency plan.

A budget details what you plan to do with finances over a relevant period of time (usually over 12 months). The Budget must link to both the strategic and business plans and can be used to benchmark performance whilst focussing predominantly on profit.

However, a budget is not used to monitor the amount of cash in the bank accounts. That is where the cashflow forecast comes in. A projection details when the actual receipts and payments are likely to occur. It reflects the actual income and expenditure from the bank accounts. Unlike the budget, a cashflow forecast accounts for capital purchase and private transactions. It also includes bank loan and equipment finance payments.

Effective use of both a budget and cashflow forecast will allow you to make business decisions with confidence. Do you have sufficient overdraft limit to meet peak demands on your cash flow during the year? What is the impact of an adjustment to the selling price of one or more stock lines? What is the right amount of holding inventory? Can you afford that new tractor?

A cash flow forecast goes hand-in-hand with tax planning by showing what money can be spared to reduce your income tax and what money will be available to pay the tax.

Murray Nankivell can help you to design and implement a Budget and Cashflow forecast that is right for your business. If you want to make a start straight away please find the below link to our free Cashflow forecast template.

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