Committing to a Cash Budget for Your Small Business

Even fiscally responsible individuals often fail to set a cash budget. You can note this in your personal life; many people find they will spend more money if they have cash in their pocket. It can be challenging to track where the cash has been spent, and it is tempting to simply get more cash when you run out. A cash budget for a small business does not necessary mean paying in dollar bills for necessities. Instead, it means using liquidity for purchases rather than debts. This can ultimately save money, but it will only work if diligently tracked and monitored.

Creating a Cash Budget

A cash budget for a small business is directly tied to income in a given week or month. Many businesses will not be certain of their income, particularly if it is tied to sales. Other businesses will have some recurring payments from existing clients they can count on or retainers they are guaranteed each month. Start by determining your guaranteed income from recurring payments. These funds should be allocated toward necessary costs such as salary, rent and other expenses. Next, estimate an anticipated income from sales and new business. This money can be allocated toward expansion expenses such as advertising or new machine purchases.

Monitoring a Cash Budget

It is easy to overspend if you have a good month or rely too much on anticipated salary instead of actual income. Monitoring your expenses and sticking to a budget is the only way to eliminate the necessity of going into debt. You will need to keep records on a daily, weekly, monthly and term basis to track expenses. One helpful tip can be investing in business accounting software. This will automate the process. It will also help you back up your accounting files either online or on an external hard drive to avoid losing the critical information.

Advantages of a Cash Budget

The main advantage of a cash budget is the way it helps you avoid overspending. When you assure you only spend what is coming in the door and no less, you know you will not be going into debt or overextending your budget. By avoiding too much debt, your business will save hard-earned dollars that would otherwise go toward interest payments.

Drawbacks of a Cash Budget

While avoiding debt can help save you money, you may miss out on expansion opportunities if you do not use financing for your small business. For example, it can be hard to capture new business if you are only relying on your existing profits. You may feel you need to add machinery or even a new employee in order to service the new business income. Most businesses, small and large, use financing from time-to-time in order to expand to new areas. You may lose a competitive edge if you fail to use this same advantage to expand into new areas. Planning for some debt can help you grow and create additional income streams in the future.

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