If you have a lot of money coming in and out of your business, it's easy for errors to creep in. These errors can lead to financial losses and decreased profits.
That's why you need a cash flow budget. It can help you control the movement of money in your company.
But that's not all it does.
In fact, there are seven other ways your cash flow budget can improve your company's financial position.
Read on to find out what they are...
Improve your financial position in seven ways using your cash flow budget
1. Use your previous budgets to spot errors you weren't aware of before. Fix these in your new cash flow budget for this year. It will help you have a stronger financial position.
2. Use your budget as a way to document changes in your business. Involve people in each department to find out what these changes are.
Continuously update your budget based on the experiences and results. During this process include these people in this process:
• Employees involved in the business process;
• Managers; and
• Debtors clerks to determine what the payment terms of debtors are.
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When new expenses arise, no one could have imagined they would be a source of so many serious problems for your business cash flow.
Even the slightest discrepancy in your financial budget can result in you not knowing whether your business is over performing or underperforming.
This is why you need a solid financial budget for your business.
3. Use your cash flow budget to record how long it takes for money to come in and out of your company. For example, if debtors only pay in 60 days, give them discounts if they pay within 10 days after getting their invoice. This significantly affects your cash flow budget because you can receive your money sooner than expected.
4. Remember your payable and receivable Vat on transactions. Your budget can help determine if you should register for Vat. If your turnover is over R1 million, or you expect it will be in the near future, register for Vat.
5. Prepare for expenses you might need to cover even if you don't know the exact amount. It will help you understand the effect of the transaction when you reflect on it in future and it will stop you from ending up out of pocket.
6. Budget for SARS' expenses like provisional tax and income tax payments. Also remember the monthly EMP201 and VAT201 submissions you need make. This way you won't incur extra penalties.
Remember inflation when you prepare a budget based on the previous year's financial information. Most costs like bank charges, insurance etc. go up every year due to inflation. But this doesn't mean you can rely on incremental budgeting
. It's a budgeting no-no that could throw off your whole budget.
Use your cash flow budget to your advantage by using it in these seven ways. It will help you reach a stronger financial position by the end of this quarter.