Updated: Sep 12, 2022
We've all heard that cash is king. For a small business, it's more than just a saying - it's gospel. You always need to know how much cash you have and how much cash you need. Many businesses fail because they can't properly manage cash flow.
The best solution for this is a cash budget. It's not sexy, but it works. It's a road map of how much you've got coming in, and how much you need to spend to keep the business running. Another priority item to have is an operating line of credit from your bank.
Cash flows are lumpy. Expenses like insurance or capital expenditures don't happen weekly or monthly. Identify these and plan for them. If you know you need to buy some equipment for $12,000, set aside $1,000/month into savings to plan for it.
Unexpected cash needs. There's always something that will come up when running a business. Try to think of as many expenses as you can when building your cash budget. Hopefully, this will minimize those unpleasant surprises.
Short Term vs. Long Term. It's a good idea to have your short term weekly and monthly cash budget to know your expected cash balances for your day to day operations. The long term budget will help you plan for big expenses like capital expenditures.
Line of Credit. A short term line of credit from your bank can help bridge the gap to help meet your cash needs. They typically are linked to your business checking account and can be set up to automatically draw funds when needed and pay back balances when you have the cash in your account. Banks will require your financial house to be in order before setting up any loans with you. We can help you get the financing you need for your business.
There's just so many hours in the day to run a business. A simple cash budget can help keep you on track. As you grow, consider building out your cash budget and do some forecasting. NexTier Solutions can help your business with cash management, budgeting, and forecasting.