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BUDGETING AND BUSINESS PLANS
Prompt action now will help minimise the risk of unforeseeable problems ahead. If the exercise identifies any likely cash flow issues, then there is more time to consider what to do about them, rather than having to react at the last moment.
If a debt or equity funding need is detected, your investors/shareholders, bank or another potential lender will want to see an up-todate business plan and cash flow forecast to ensure the required timing and level of funding requested is appropriate to cover foreseeable eventualities. This could include consideration of a variety of scenarios to help see how robust the business is to withstand a range of trading conditions. While many new businesses will have a business plan, a continuing business needs to keep an eye on this too.
A business plan is not meant to be put in a drawer and forgotten about; it is a working document that needs to be regularly reviewed and updated to reflect reality, along with the preparation of management accounts, updated budgets and cash flow projections to assess performance now and for future periods.
Accurate and current management accounts prepared on a timely basis will facilitate more precise information in forecasting and enable a business to monitor its performance against forecasts and plans and understand ‘why’ things are different. Software will often automate some of this comparison. This all helps you to be proactive to rectify issues before it’s too late. Anticipating short-term cash flow shortages also provides a chance to review action on debtors and creditors to possibly accelerate revenue receipts or defer costs. This could also allow for reappraising decisions on new investments and recruitment where relevant.
Make time to budget, be realistic about what lies ahead and make sure you have all the right information to hand.
