The Institute of Management Accountants has released a set of tips to help small business managers with their planning and budgeting.
Recognize What a Budget is For
A budget is not simply an arbitrary limit on spending - it should reflect both income and expense targets. It should also reinforce the adverse financial consequences of failing to achieve either of those targets. Be sure all budget figures are supported by realistic assumptions.
Understand Cash Flow
A regularly updated schedule of anticipated cash receipts and disbursements will indicate - in advance - whether there will be enough cash to pay employees, vendors, creditors, and owners. The schedule will also indicate if additional cash will be needed, how much, and when, which establishes a much stronger bargaining position when dealing with lenders and pursuing other sources of capital.
Improve Cash Flow
Look for opportunities to collect more cash and to collect it sooner, as well as opportunities to spend less cash and to part with it later. Identifying and taking advantage of those opportunities will maximize the value of the business.
Plan for Contingencies
Plan for any event that has a significant possibility of occurring and that would impose financial hardship if it took place. At a minimum, plan for the impact of a natural disaster on the company's operations. It's also good to plan for "upside" contingencies, such as receiving an unusually large order or a competitor's abrupt exit from the market.
Regularly Compare Actual Results to the Budget
Don't wait until the end of the year to compare actual results to the budget - do it at least once a month. Look for trends and reasons to amend the budget in light of new information.
Ultimately, following these tips will help you avoid unexpected surprises and be better prepared for future challenges and opportunities.
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