Cash or working capital for business is like water for life. Businesses that effectively manage their cash flow ensure steady and sustainable growth. To achieve detailed insights into the flow of cash in and out of your business is easy through efficient cash flow management.
Cash flow management is essentially monitoring and optimizing your business finances so that you stay in control of your cash reserves. The market today is swarmed with business intelligence tools like ZikZuk Technologies’ BFM (Business Finance Manager) to simplify managing your balance sheet and thereby your money. However, one very important aspect of cash flow management is estimating the incoming and outgoing cash over a period called Cash Flow Budget.
A cash flow budget or forecast is defined as a process of tracking your revenue and expenditure to ensure you can manage business operations without a cash crunch. It also helps you in deciding how best to use your cash availability for operational efficiency, business expansions, and other opportunities.
To ensure that you create a robust cash flow budget, we are sharing key tips that will help you improve your overall cash flow management:
Establish a realistic sales forecast
The first step of creating a cash flow budget is to understand the kind of sales numbers you can expect during the period. Although forecasts aren’t necessarily accurate, they have to be realistic. Using a robust business intelligence tool, you will have an effective cash flow management strategy to optimize your expenses against the revenue you will be generating.
Understand your collections cycle
Making a sale guarantees cash inflow, but it is also important to understand your collections cycle. The gap between you generating an invoice and your customer making a payment against it plays a critical part in cash flow budgeting. For example, the September invoice could translate into a November revenue.
List out your payables & cash outlays
For the period you’re creating the cash flow forecast, list down all the payables. Only when you know all your expenditures like rent, salaries, loan payments, and insurance, would you be able to make an informed decision on how to utilize the revenue generated.
Manage cash shortfalls or surplus
Efficient cash flow management involves prioritizing payables against incoming money. Therefore, having a cash flow budget will give you the benefit of estimating your receivables and payables. With this, you can predict cash shortfall and accordingly manage payables like postponing or cost-cutting non-essential expenditures. You can also run a promotional campaign to boost your sales to generate extra revenue. However, in case of a cash surplus, you can power your growth plans.
Cash flow management seems tedious with a lot of financial planning and forecasting. It requires you to have a personalized business finance manager to ensure error free operations. You can make it a seamless process using BFM, which helps businesses strengthen their finances. It offers three significant advantages:
- It gives a 360° view of the business’s financial situation including cash flow forecast & actionable insights
- It sends timely payment reminders to your customers to automate collections
- It also provides businesses with credit lines based on their cash flow
To learn more about ZikZuk’s BFM, click here.