PREPARING MONTHLY BUDGET AND CASH FLOW
At SME.TAX, we specialize in helping SMEs understand the essentials of budgeting and cash flow management. By breaking down these concepts, we can see how they work together to ensure financial stability.
Monthly Budget
A monthly budget is a projection of your income and expenses for a month. For new businesses, estimating exact figures can be challenging, but it’s crucial to start with a turnover estimate and a comprehensive list of potential expenses. This initial exercise forms the foundation of your budget.
As you start trading, replace these estimates with actual figures to see if you have overestimated or underestimated your income and expenses. Ideally, you should underestimate your income and overestimate your expenses to avoid shortfalls.
Cash Flow Forecast
Cash flow reflects the movement of money in and out of your business. It’s not just the income from clients but includes all available funds, such as overdrafts, loans, and accounts receivable.
Preparing a cash flow forecast helps ensure you have enough funds to meet your financial commitments when they are due. Proper planning ensures you have sufficient funds to cover expected and unexpected expenses.
How Do Budget and Cash Flow Work Together?
Your budget shows your projected turnover, expenses, and profit on a monthly basis. Cash flow, on the other hand, details how you’ll manage your expenses with available funds. Regularly reviewing both helps predict when you might need additional funding, providing ample time to secure it.
Example Scenario:
Consider a typical small business scenario where you invoice clients monthly, and 70% pay within 30 days while the remaining 30% take 90 to 120 days. The delayed payments usually account for your profit margin. If new client work continues, this setup is manageable.
Now, imagine a business stoppage due to a global pandemic. You can’t secure new clients, and existing clients delay payments further. To manage this situation, you should have:
- Sent letters of demand to delinquent clients when the pandemic hit.
- Secured an overdraft or bridging finance from the bank.
- Negotiated extended credit terms with your creditors.
- Arranged loans from family and friends.
Conclusion
Understanding and implementing a monthly budget and cash flow forecast is vital for any business’s financial health. Regular monitoring and adjustments help navigate unexpected challenges and ensure long-term success.
For personalized assistance with your business budgeting and cash flow management, contact SME.TAX today.
Bridgement and SME.Tax
We’re excited to introduce you to Bridgement, the Xero App of the Year winner, which offers revolving credit facilities of up to R5,000,000 to help you meet your short-term working capital needs. With no application or management fees, transparent pricing, and the flexibility to settle early, Bridgement is the perfect solution to ensure you’re always prepared to seize opportunities or meet obligations like timely SARS payments. Click [https://bit.ly/bridgementSMT] to apply and get a prioritized facility tailored for your business.
Our Services:
At SME.TAX we do more than just advise clients about budgets and cash flow.
We are your “one stop SME shop”, assisting with everything from Accounting, Business Management, BEE, Consulting, Company Registration to Payroll and Mentoring.
For more information, please visit our website www.sme.tax or give us a call on +27 012 021 0829
