Next, you use
the production budget, the general and administrative budget, the capital
expenditures budget, the non-production budget, and the taxes budget to
estimate the expenses you will actually be paying (cash outflows) during each
month.
When you pull
all of this together, you have what I call a “dynamic cash flow budget”. I am a
big believer in actively using an Excel based dynamic cash flow budget. Every
time I started a new CFO job, one of the first things I did was create a
dynamic cash flow budget to help me learn the cash flow for the new company I
was working for.
With a
dynamic cash flow budget, you update estimated values with actual cash
collections and expenses paid. This allows you to obtain a good understanding
of the cash flow performance of your business. You also look at the estimated future
cash in- and out-flows to see if there are any adjustments that need to be made
for future periods.
What I like
about working with a dynamic cash flow budget is that it helps you become an expert
at your firm’s cash flow. When you use this report on a regular basis, you gain
a good understanding of how your customers are paying as well as the
obligations your company routinely pays.
If your net
cash flow (cash inflows less cash outflows) is positive, you have a positive
cash flow (remember - Happiness is a Positive Cash Flow). If your net cash flow
is negative, you may need to review your budget and make any necessary
adjustments to bring the cash flow to a positive state.
Cash flow is
king to small businesses. This is why it is so important to budget your cash
flow and to proactively evaluate your expenditures to ensure that your cash
flow will be positive.
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