insight : michele williams
The Importance of Creating a Budget and Managing Cash Flow These important financial documents will help you plan and manage your business more effectively BY MICHELE WILLIAMS
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any of us are feeling the current hiccups in the supply chain and other disruptions that are making it difficult to complete jobs on time. And with these disruptions, we are not getting paid in a timely manner. The trickledown from this is a cash-flow crunch. Even in a year of healthy supply chains, cash flow can be an issue if not managed closely. That’s why I believe it’s vital to monitor not just a cash-flow statement but a budget that will help you create the most accurate cash-flow statement possible.
28 | JULY + AUGUST 2021
| wf-vision.com
What is cash flow? Simply put, it is the cash coming in and out of your business at any given time. We usually manage cash flow by looking to see what is in our bank accounts. Before each year begins, create a budget for your company. This budget will show how much revenue you expect to come into the company and what income sources are most likely to deliver the funds. In addition to income, note the estimated cost of goods and gross profit derived from this. Then, list each expense category with the estimated amount that will be spent on that item throughout the year. Think of this as a glimpse of what you are expecting your profit and loss statement to look like at the end of the year in summary form.
Now, to create a statement of cash flows, we will look at what is actually coming in and out of your bank accounts at any given time that are working toward this budget you have created. It may be that January is a heavy-expense month, and for someone else, July is their heavy-expense month. A future statement of cash flows allows you to estimate monthly (or whatever time frame you are working with) what will come in and out (flow) through your firm. Knowing this gives you much-needed information on how much money needs to be on hand at any given time for expenses such as payroll and extra money on hand.
