How to Prepare a Budget When You Have Irregular Cash Flow
A company’s cash flow is considered the heartbeat of the company. Aside from keeping your operations afloat, it also lets you see the spending power that your company currently has – allowing you to decide on resource allocations.
With significant company decisions that rely on knowing your company’s cash flow, how does a company decide when a company’s cash flow is not consistent?
An irregular cash flow is where the problem occurs; it might be likened to an erratic heartbeat, and you do whatever you can to stabilize it.
An irregular cash flow begs the questions: How can a company budget with an irregular cash flow? What could you do when your cash flow expectations are not met?
Although seemingly impossible, your company can still gauge your expenses to prepare a company budget that will work with an irregular cash-flow. Here’s how you can do it:
Accounting Fixed Expenses
Fixed expenses are recurring and almost-unchanging costs of running your business. It includes payroll, phone bills, office supplies, employees’ insurances and such. These are what you can consider the most central sources of your cash outflow, so make sure that these are all accounted in your budget. Also, keep track of any minor changes like an increase in your office space rent or a change in your internet access plan payment and update your cash flow forecasting for the following year.
Estimating Variable Expenses
Variable expenses are not entirely different from fixed expenses. You have to pay for these monthly; however, their actuals costs vary from time to time. Examples of such are electricity, water, gas, A/C and heat etc. To have an accurate estimate, you have to consider your workforce’s total and actual consumption, then compare them monthly to get the average. This can hit two birds with one stone – this can be your input value for your cash flow budget, and you can pinpoint which variable expense you can minimize to cut your costs in the long run.
Limiting Luxury Expenses
Feeling the need to have the latest gadgets and equipment? Don’t fall prey to the itch; consider the ROI of every probable purchase because this determines if something is a real investment or just a luxury. You may also want to search for less expensive yet quality items in favor of your first option. Think twice before purchasing and wait for your cash flow to be more stabilized.
Estimating Monthly Revenue
We have already established here the necessity of revenue forecasting. While it might be difficult to pinpoint exactly what your expenses will be for the succeeding months, it is still possible to have an estimate, which could help you in making important business decisions to make your critical business numbers.
By studying the range of the revenue the company makes and aligning it with the fixed expenses and variables that you are aware of, you will be able to budget your company expenses according to your spending capabilities without relying on a fixed cash-flow, allowing you to make important growth-driven decisions that benefits the company as a whole.
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This post was first published on 1 July 2019 and edited 9 September 2023. Edited by: Aly Tagamolila