We continue the series of Winning Strategies for Business Success and covers monthly cash flows and budgets in detail.
Producing a monthly cash flow and budget document simply means you are detailing your annual sales, together with your operation costs and capital expenditure on a monthly basis: The objective being to create a management tool to enable accurate tracking and critical analysis of all monthly fluctuations and variations to your annual budget. This strategy is critical for long term business success. The sooner management is aware of any negative trends in business the sooner corrective or remedial action can be taken. Alternatively positive trends may give indication of profitable opportunity emerging that can be immediately advantaged.
This monthly analysis is also referred to as budget phasing: It is particularly vital in best management practice to calendar sales on a monthly basis as accurately as possible. Nearly every business experiences seasonal sales fluctuations that can be caused by a number of reasons. Knowing your business means these factors can and must be taken into account in your monthly budget appraisal.
Fortunately your business history can provide a very reliable guide for more accurate budgeted phasing of sales. Here are some tips.
Calculate the percentage of annual sales that took place in each month of the previous three years. Any pattern that emerges will provide a reasonably accurate guide as to what may be expected in the current period.
Reasonable variations to these may give notice of a problem or an opportunity that will need to be investigated. Now do the same exercise with the annual profit budget to know monthly whether or not the business is on course to achievement or otherwise.
You will notice the emphasis is on monthly analysis and this is for good reason. Quarterly or longer periods just will not provide you with a sufficiently early warning of an adverse trend or of a potential profit shortfall. The sooner you become aware of trends the sooner you can take remedial or other action, a critical strategy for business success.
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