Did your New Year’s resolutions include making significant changes, gaining control over, or simply maintaining your business in its current form? If so, putting a plan in place will help you think through the critical aspects of your business and help you to make good decisions in the year ahead. Like a map, a plan can help you to see where you want to go and will help you feel more confident about how to get there. Two effective tools for planning are budgets and cash flow forecasts.
Preparing a budget is a good discipline as it encourages you to look forward and forecast what your expected income and expenditure will be for the upcoming year. This is very important if you are planning for growth as it enables this to be monitored. If a business grows too fast and payments from debtors are not being received in a timely manner, then payment of everyday business expenses may put a strain on a business’s cash flow.
Once the budget is set, regular comparison against actual performance enables you to review variances and take action as necessary. Taking a pro-active approach by planning your cash commitments for the future can help to avoid the risk of spending more money than your business is generating.
