The Ultimate Solution For Managing Your Budget and Cashflow
I bet just the very title of this article is enough to make you run for cover! Along with paper piles, budget and cashflow is another area that can drive solo business owners over the edge! In your corporate days you would have had a bookkeeping/accounting department that took care of all of this for you - they paid the invoices, they tracked the receivables, they tracked the income, and they told you the bottom line!
Now that you're running your own business you are also the Chief Financial Officer, and it can be very overwhelming. However, it needn't be. Let me share with you three simple steps that you can put in place to manage your budget and cashflow.
What is a Cashflow projection?
One important area of your Financial Management System is that of a cashflow projection. Put simply, a cashflow projection shows whether your anticipated income will be able to cover your expected (projected) expenses and this report is very beneficial to you in your business.
It is an annual report and, if set up correctly, will show you how cash will flow through your business throughout the current financial year. I've been using a cashflow report in my business for many years and find it invaluable. Just recently I the chance to participate in a high-profile seminar that came up, and because I have my systems in place, I knew straightaway that it was something I could take part in!
Step 1 - Create Your Cashflow Report
This is very easy to do using a spreadsheet. Create a column that lists all of your expenses, i.e. office supplies, legal & professional fees, membership, advertising etc. and a column for each month of the year. You will need to create formula that will tell you your total income, total expenses, and subtracts the expenses from the income, and also carries forward any amounts from month-to-month. This is so you can see how your finances are 'flowing' throughout the year.
Step 2 - Input Your Data
Taking your financial data from your bookkeeping system input your actual income and expenses, and list any projected expenses in the appropriate row/column. Your cashflow report will now show you at-a-glance any time periods for which you will need to be especially aware of. For example you may have a lot of expenses in one particular month so you'll know that the previous month you'll need to make sure that you have the funds kept back in your bank account to take care of those upcoming expenses.
It will also show you if you can afford to make an investment in your business, whether that's signing up for a new service or membership club, taking out an advertisement, or buying new equipment.
Your cashflow projection can also be used as a budget planner. You can plan out when annual memberships are due and put those in ahead of time. You can also add in an amount for when your taxes are due. This will provide you with a really good feel of how cash is flowing through your business, month after month, throughout the year, and you can also tell how much you can take off for owners draw, but still leave enough to cover the anticipated expenses.
Step 3 - Schedule In The Time
Now that you have your cashflow report in place, it's important that you update it regularly so that you can stay aware of how cash is flowing through your business, and take any actions necessary so that you have enough to cover all of your anticipated expenses.
I recommend scheduling in at least 30 minutes once a month to update this critical financial management report.
A Final Thought...
Having an annual cashflow projection will provide you with all of the information you need so that you can keep on top of your business financially and know where you are.
If you have a bookkeeper taking care of all your financial records for you, ask them to prepare your monthly cashflow report for you.
By Tracey Lawton
(c) 2011 Tracey Lawton
Online Business Development Strategist, Tracey Lawton, teaches solo service professionals how to create a thriving and profitable business through the implementation of simple office organization and online marketing systems, which leads to more clients, more profits, and more freedom. Get your fr.ee "Office Organization Success Toolkit" plus how-to articles, resources, tips, and tools at http://www.officeorganizationsuccess.com.