Running a business without a budget or cashflow forecast is like trying to navigate a road trip without a map or GPS. Sure, you might end up somewhere, but will it be where you wanted to go? And what happens if you run out of fuel halfway? A budget and a cashflow forecast are not just for the“big guys” in the business world—they are essential tools for businesses of all shapes and sizes.

Let us explore why.

What is a Budget, and Why Do You Need One?

A budget is your business’s financial plan—a detailed breakdown of where your revenue will come from and where it will go (direct costs and expenses). It is like a crystal ball (but way more reliable) that helps you assess if you are profitable (and when), plan for annual expenses,and avoid overspending.

Here is why having a budget is crucial, even for a small business:

• Control Freaks, Rejoice: A budget gives you control over your finances. You can make informed decisions about profitability, reducing expenses, and increasing     prices.
• Goal Getters: A budget helps you set goals and monitor your results against them to assess if you are on track and make informed decisions.
• Emergency Cushion: A well-thought-out budget can help you prepare for unexpected expenses. Think of it as your business’s financial safety net.
• Financial Planning: Knowing where your money is going reduces the anxiety of “end-of-month surprises.” Want to expand your services or hire more staff? A budget can show you if you can afford it – and when.

Imagine this: You plan to treat yourself to a holiday. Without a budget, you splurge on a five-star resort only to realize you cannot afford the flight. A business budget works the same way—it helps you see the big picture and make decisions accordingly.

However, the important thing is that a budget only predicts the statement of Profit & Loss (P&L). In other words, it predicts profits (or losses) in your business.

What is a Cashflow Forecast?

A cashflow forecast converts your budget into inflow and outflow of cash in your business over a specific period. Profit and cash do not always operate in the same time zone. A cashflow forecast will show when cash –and not profit - will come in (like client payments) and when it will go out(like rent, salaries, supplier bills and even GST and income tax).

While a budget only predicts the P&L, a cashflow forecast predicts the P&L, the Balance Sheet and the statement of Cashflows,which is why it is also called a 3-way forecast.

So, why do you need it?

• Avoid crossing the red line: A cashflow forecast can flag cash shortages     before they happen, giving you time to take action.
• Stay Ahead of the Curve: Knowing when money will arrive and leave means you     can plan payments and investments without worrying about a financial     hiccup.
• Peace of Mind: If you know your cash position at any given time, you can     sleep better (no more midnight “can I make payroll?” panic attacks).
• Seize Opportunities: With a clear cashflow picture, you can confidently jump on opportunities, like a bulk discount from a supplier or an unplanned bargain.

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Think of a cashflow forecast like your business’s fitness tracker. It monitors your financial health, flags potential issues, and keeps you on track.

Why Both?

If you have a budget, you may need a cashflow forecast,especially if your business is growing fast, if your clients take long to pay, if your business is seasonal or if your cash is often tight.

A cashflow forecast is a form of budget on steroids. So if you have a cashflow forecast, it automatically includes your budget (so you don’t need another budget) and more. The budget gives you the plan; a cashflow forecast tells you whether you have the liquidity to follow through. Without both, you might end up with a solid plan but no cash to execute it—or cash in the bank but no plan to make the most of it.

Pro Tips for Small Businesses

For your budget:

1. Start Simple: Your budget does not need to be complex. Start with the basics using your results from the prior year (if you were in business) and adjust as needed.
2. Use Tools: Excel spreadsheets and accounting softwares such as Xero can make the process less daunting.
3. Report against budget: use your budget as the goal to achieve and monitor your results regularly.

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For your cashflow forecast:

A cashflow forecast is a lot more complex and requires deep underlying financial understanding of how the cash flows between the P&L,the balance sheet and the cashflow forecast, taking into account the timing differences between profit and cash and cash payments not part of the P&L,such as tax, investments and loans.

1.   Use spreadsheets with caution: Industry studies show that 90% of spreadsheets containing more than 150 rows have at least one major mistake so use at own risks.

2. Outsource to a professional: Not a financial guru? No problem. A good accountant can help. Ask the right questions. A good accountant will build a forecast based on detailed underlying assumptions – not just on a flat +10% revenue or whatever quick fix.
3. Use your cashflow forecast as a rolling forecast: A rolling forecast is a forecast where every month forecasted figures are replaced with actuals and the system     auto-adjusts future projections based on actuals to date – to keep it relevant overtime.

Final Thoughts

Even the smallest business benefits from a budget and cashflow forecast. They are not just documents—they are lifelines that help keep your business financially healthy, prepared, and ready for growth.

Need help setting yours up? At Strategico, we specialize in turning financial murkiness into clarity. Reach out to us to get started. After all, a little planning now can save you a lot of headaches later!

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