Business Advice Matters - Plan or Perish?

With a new financial year under way, now is the time to financially map your business. If you get this financial mapping right, you reduce your risk and remove some of the surprises that can occur along the way. Need some tips? Read on!

Start by putting together an operating budget for your business. Rather than relying on last years’ figures adjusted by some percentage, look at each line item and assess it critically. Start with your revenue and work up a reliable estimate of your income for the coming year.

Think about what activities (including marketing) will be required to produce this income. Once you are comfortable with the income estimates, look at your expenses and again work up your expenditure budget.

Be tough on your costs.

Can you manage them more effectively? Allow for increases that are likely to flow through into the current year or any additional costs you will incur due to growth. Working through this exercise should allow you to produce your operating budget and identify your likely profit for the coming year. Once you have this figure, do a couple of alternative estimates so that you understand the impact of changes in your assumptions.

Once you have your forecast profit position, reduce that to a cash flow forecast. You need to know both your profit and cash position. Arriving at your cash position is about understanding the timing differences: How long will it take for your customers to pay you? How much stock will you need to hold? What are the payment terms required by your suppliers?

With your cash flow, allow for things like tax payments, loan repayments, dividends and any capital purchases that you’ve planned. These can be ‘big ticket’ items and if you don’t allow for them, you could get caught out.

As part of your cash flow forecast, identify your capital expenditure requirements. Don’t deal with these on a one-off basis as they arise, plan them in advance.

Once you have these in place you have your financial road map for the year. Happy driving!

Like to know more?

Contact the office and make an appointment to talk to Michael about developing your budget and cash flow forecast. We’d be thrilled to help you create your financial road map.

2010 October Newsletter - TRE PONTE corporate

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.