Cash flow, expenses, sales and the 2 other pillars of business financial budgeting
- By Andrew Junkuhn
- Published 02/17/2010
- Budgeting
- Unrated
Cash flow, expenses, sales and the 2 other pillars of business financial budgeting
Managing and running your own business is incredibly hard. Not only do you have to think of the strategy, bring in the work, pay the bills, worry about staff and taxes, you also have to ensure that you plan for the future. One of the most effective ways to do this is via forecasting. The best place to start is with a sales forecast then tackle your expenses. Its a process which you can streamline once you know what 5 aspects you need to include.
Sales Forecasts
We all know that to make money, you have to sell something. Sales is the backbone of every company and without any sales there is nothing. Any form of sales is an agreement that one party, the seller, is going to provide a product or a service, which will earn either money or some form of compensation by the other party, the buyer.
Expense Budgets
Similarly, to make money you have to spend money. To fabricate, manufacture, distribute the range of services is massive, but each one of these require a certain amount of output, regardless of the industry. No matter what type of service you may provide, there will always be some form of expenditure that you would need to outlay.
Cash Flow Forecast
To keep total control and to understand where your money is coming and going, cash flow is vital. It's important to be aware of where the money is, at all times, regardless of how small an amount. The cash flow allows anybody, at a glance, to determine whether or not the company is in a viable position, on a short term basis, to pay its bills. Every single cent spent or earned affects the profit line.
Income Statement
An income statement, also known as the profit and loss statement, is a summary, for a certain period of time, that will allow any manager or business owner to be able to see immediately whether or not the company made or lost any revenue and in which particular area. Very simply your income statement shows a sales amount and an expense amount. Subtract expenses from revenue and you have your bottom line.
Variance Analysis
Variance analysis allow you to understand the present cost, and use this knowledge to control future expenditure. An example could be that material is obtained today, but only half of it is used. Next month the remainder is used, but by that time, the cost of purchasing it may have risen, so even though you had it in stock, it still allows you to calculate what the market is dictating. It's the difference or comparison between actual costs/sales and budgeted costs/sales.
Combine these five pillars, and you have a very strong platform upon which you can make sound financial decisions and oversee the financial aspect of your business. Remember "cash is king" and without it you wont be able to pay your bills, buy stock or grow the business in a meaningful way.
Sales Forecasts
We all know that to make money, you have to sell something. Sales is the backbone of every company and without any sales there is nothing. Any form of sales is an agreement that one party, the seller, is going to provide a product or a service, which will earn either money or some form of compensation by the other party, the buyer.
Expense Budgets
Similarly, to make money you have to spend money. To fabricate, manufacture, distribute the range of services is massive, but each one of these require a certain amount of output, regardless of the industry. No matter what type of service you may provide, there will always be some form of expenditure that you would need to outlay.
Cash Flow Forecast
To keep total control and to understand where your money is coming and going, cash flow is vital. It's important to be aware of where the money is, at all times, regardless of how small an amount. The cash flow allows anybody, at a glance, to determine whether or not the company is in a viable position, on a short term basis, to pay its bills. Every single cent spent or earned affects the profit line.
Income Statement
An income statement, also known as the profit and loss statement, is a summary, for a certain period of time, that will allow any manager or business owner to be able to see immediately whether or not the company made or lost any revenue and in which particular area. Very simply your income statement shows a sales amount and an expense amount. Subtract expenses from revenue and you have your bottom line.
Variance Analysis
Variance analysis allow you to understand the present cost, and use this knowledge to control future expenditure. An example could be that material is obtained today, but only half of it is used. Next month the remainder is used, but by that time, the cost of purchasing it may have risen, so even though you had it in stock, it still allows you to calculate what the market is dictating. It's the difference or comparison between actual costs/sales and budgeted costs/sales.
Combine these five pillars, and you have a very strong platform upon which you can make sound financial decisions and oversee the financial aspect of your business. Remember "cash is king" and without it you wont be able to pay your bills, buy stock or grow the business in a meaningful way.
Andrew Junkuhn
You are going to need software to manage the process of cash flow forecasts, sales forecasts and expense budgets. Google for budgeting software or visit http://www.1234cast.com where you'll find software and more articles on cash flow forecasting and budgeting.
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