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Financial Calculators

GettingAhead Association Home » Business Support Services » Budgeting Assistance

Even a financially stable company may face financial problems if it doesn’t have enough cash in the bank when bills are due. According to the Michigan Association of CPAs, there any several steps that a business owner can take to ensure reliable cash flow.

Start by Budgeting
Business owners should stay on top of trends in their monthly sales and expenses, how well clients are paying and what credit issues the business faces. Creating a realistic operating budget is a great first step to maintain a sense of the financial health of your business. Begin by finding out how much cash you have in the bank today, then estimate how much you will receive from customers and other sources in the coming month. Once you’ve totaled these numbers, subtract your projected expenses, including not only fixed costs, such as salaries and rent, but also variable costs, such as supplies.

Check the Cash Situation
In examining your budget, determine first whether you will have enough cash to cover your costs during the month. If you won’t, consider how you will pay your bills and what this deficit says about your business. Is it due to a one-time surge in costs or an indication of ongoing problems?

Spot the Trends
If you do have enough to cover your expenses, the next question is how the end of month balance compares with your starting balance. If the final amount is higher or lower than the beginning figure, consider what that change says about your business. If you will end the month with less cash, does that mean expenses are creeping higher? If your cash figure will be higher at the end of the month, how should you use those extra funds? When you understand the trends in your company’s financial position, you can make timely adjustments for unexpected costs, a decline in revenues or greater demand for your products.

Keep the Dollars Flowing

In addition to maintaining up-to-date budgets, there are also some practical day-to-day ways to improve your cash flow. Companies don’t get paid for goods and services they deliver until they render an invoice for them, so make sure your invoices are sent out on a timely basis. In addition, your business should have a system to keep track of outstanding invoices and to contact customers who are behind on their payments. And, when you take on a long-term project, negotiate an agreement with the customer to include regular monthly progress payments to be made during the job, instead of waiting until project completion to receive your entire fee.

Of course, you won’t be able to take advantage of the payments you get until they’re in the bank. Make certain that procedures are in place to timely record receipt of payments from your customers and to have them deposited that same day at your bank.

Use your Judgment
Sometimes business owners do an excellent job of managing their cash flow, but they face problems because certain customers don’t pay their bills on time. One way to cut down on outstanding debts is to know whom you’re dealing with from the start. Check your customers’ credit references and speak with other suppliers who have done business with them.

Your CPA can offer the financial expertise to keep your business running smoothly on a day-to-day basis and help you understand your cash needs and how to make sure they are met.

You seek the expertise of CPAs at tax and audit time, of course. But CPAs also promote personal and professional financial security year round. Visit the CPA Referral Service on the MACPA Web site to search for a CPA in your geographical area or specific area of expertise. This article was submitted by the Michigan Association of CPAs.