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Nine simple steps to free up future cash flow

by , 27 August 2014
You've just put the phone down from one of your suppliers. And you feel sickly panic wash over you. He's selling stock you need at an outrageously low price. You're desperate for the bargain. But you don't have the money to fork out right now. What do you do?

Unless you can strike a deal to take the stock on consignment, you're going to miss out on this great offer. What a disappointment! There's not much you can do today. But I'm going to tell you how you can ensure you never miss out on an opportunity like this again. Stop what you're doing and take three minutes to read this article on how to increase your future budgeted expenditure.

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How to increase your future budgeted expenditure 
The answer is so simple. It frees up vital cash flow and gives you an insight into exactly what you're spending your money on. It's called an operating budget. And here are nine simple steps to create your operating budget.
Step #1: Put last year's income statement figures into your spreadsheet

Step #2: Use last year's figures to forecast future sales 

Step #3: Forecast the cost of sales by using the last year's figures
Step #4: Forecast your variable costs 
Don't forget to budget enough for labour and material. Calculate if you'll need to hire more workers this year or if you project you'll need increased stock.
Step #5: Forecast fixed costs 
Make sure you budget for unexpected costs like launching new products or inflation.
Step #6: Determine profit/loss for the forecasted 12 months 
Do this by deducting the cost of sales, variable costs and fixed costs from your total projected sales.
Keep reading to find out the last three steps to create your operating budget to free up future budgeted expenditure.

Step #7: Break your annual forecasted sales and costs goal into 12 monthly benchmarks for your budget 
To do this, divide the total in the 'Forecast 12 month' column by 12 for each month
Step #8: Do this calculation for sales, cost of sales, variable costs and fixed costs
Step #9: Re-evaluate forecasts and monitor throughout
The benefit of this budget is you can regularly re-evaluate your forecast and make adjustments if the net profit isn't what you expected. 
It's up to you to determine if your net profit forecast is fair for your business based on prior year's figures and events. 
Until next time,
Jan van Zyl, Professional Accountant (SA)
The Digital Practical Accountancy Guide, Contributing writer
P.S: Want the full 16-page chapter on how to create you operating budget with downloadable operating budget template? We're publishing it in this month's Digital Practical Accountancy Guide. Don't have your copy yet? Go to https://practicalaccountancylooseleafsubscriptionservice.fspsecure.co.za to get yours today!

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