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How Can Cash Flow Planning Help Your Bottom Line?

By October 10, 2019 No Comments

Money tends to leave much easier and faster than it comes in. That’s why cash flow planning is paramount for small business owners. With the right amount of planning, strategy, and forecasting, it can help any solid business succeed (and improve their bottom line).

A large part of cash flow planning is creating a cash budget, which determines the patterns of how you collect and pay over a specific period of time (i.e. by month, quarter or year). The goal of cash flow planning is to maintain sufficient cash for operations and liabilities without leaving too much cash idle.

How Can Cash Flow Planning Help Your Bottom Line?

Start Cash Flow Planning By Developing a Cash Flow Statement

Creating a cash flow statement is the first step in cash flow planning and is a key tool used to plan for short- and long-term. 

A cash flow statement is a document used to forecast how much money is coming into (cash inflow) and going out (cash outflow) of your business. 

Do this by outlining an annual plan split up into monthly payments. Include details such as how much you expect to spend or receive over a given period when creating this document.

Certain payments must be paid off at specific times. For example, rent payments are generally paid off monthly, while insurance premium could be paid on a yearly basis.

By planningand forecastingthe many different payments you need to make each month, you can really see how much movable cash you have. That way, you gain a better understanding of how much cash you can actually spend! It doesn’t matter how frequent these costs are met. What’s important is that you include these cash flow items in your business cash flow planning to avoid any surprises down the road.

Related: How To Turn On Your Cash Flow in Under a Minute

Analyze Findings in Your Cash Budget

Once you’ve gained a solid idea of your monthly cash budget, a good rule of thumb is to compare it to your business’ real-world performance. Comparing your planned budget to actual outcomes will provide invaluable financial insights.

Also, this comparison can provide vital information on how to plan for (and refine) your next month’s budget. In particular, small business owners should pay attention to their cash flow, cash position, and accuracy of their cash budget.

Related: Minimizing Small Business Expenses to Improve Cash Flow

Put Aside Cash for a Rainy Day

A large part of improving your business’ bottom line is to save money for unpredictable expenses. Much like an emergency fund, small business owners should make sure they have cash set aside to use for unexpected expenses that otherwise could have major impacts on their cash flow. 

From last-minute repair computer maintenances to damages made to your office or home, any cash put aside for a rainy day is critical to keeping your business afloat.

Related: Cash Reserve: Its Importance and Why Your Small Business Needs One