Why your business spending ability shouldn’t be measured by the available funds in your bank account…
It’s interesting that most businesses manage their cash flow this way… If there’s something that needs to be paid and the money is in the account, they take out the “checkbook”.
But what happens when you need to invest in equipment or when a financial decision needs to be made? Are you still just looking at your bank account balance?
What’s the alternative?
Forecasting! It’s an incredibly important tool/practice when it comes to maintaining financial health within a business.
When you have a forecast of possible slow months or upcoming expenses outside of the recurring ones, you are able to make more educated decisions when these circumstances come up.
When deciding to take a trip somewhere, we often look at the weather forecast so that we can take proper attire and be prepared for fluctuations in climate. This is a very similar situation.
Let’s take a look at an example…
You have $10k in the account and need to make a $5k purchase. You’re ready to swipe your card… If you had up-to-date projections, you’d realize that next month is a slow month, and the $10k that you had in the account is to support that. Instead, you swiped the card and realized later on that you could have held on a little longer to make that purchase, and instead you now have to pay interest to borrow money to cover that gap in cash flow.
It happens! We’re human and let’s be honest, business owners wear WAY TOO MANY HATS sometimes!
Managing Money in Your Business
There will be seasons when you do better than others and the forecast will never be spot on, but it WILL help you make more educated decisions.
When you’re ready to purchase something or make a financial decision within your business, take a look at your projections to see what the coming months are bound to look like. If your sales are good this month but the next three months you expect to take a hit, you don’t want to use the funds you’ll inevitably need.
Reviewing your forecast will become a habit, and you’ll start to realize how impactful it really is.
This may all sound overwhelming. The good news is this is something that we take care of for our clients because we know how important it is in situations like this.
Ready to learn more? Send us an email at [email protected] or give us a call at 818-436-2775.