Business owners are sometimes rather sceptical about the advice they receive about cash budgeting. Their argument is that cash flow for small businesses is often sporadic and unpredictable. No matter how much time is spent on projections, there is a limit to just how reliable they can be. So, why waste time on a useless and time-wasting exercise?
Commenting, Gerald Irwin of Sutton Coldfield based Licensed Insolvency Practitioners and Business Advisers, Irwin Insolvency said, “Business owners should not be viewing financial projections as a prediction of the future but rather more an exploration of the range of possibilities based on certain assumptions. Number crunching can be invaluable for a business owner to comprehend the dynamics of how different elements of the total financial landscape are inter-related and understand what effect changes in some can cause.”
All financial assumptions can be divided into revenue assumptions and cost assumptions. Revenues can be estimated directly or indirectly. When estimating costs, it is necessary to categorise these as investments in long-term assets, expenses, deposits, working capital et al.
Expenses can be further categorised into one-time start-up expenses and regular monthly operating expenses starting with the regular expenditure then moving on to those where a bit of guesswork may be required.