This has been a long and turbulent year for businesses of all sizes. The impact of COVID-19 has been a boom for certain businesses and crushed many others. Every business owner should develop an annual budget and cash forecast to examine monthly as you evaluate fluctuations to that plan. This can be a daunting process if you don’t like crunching numbers or if you don’t have the right tools for the job. Cultivate provides our members with budget and cash forecast templates as well as support as your sounding board. In our upcoming Cultivate Works event, we will provide members and guests with our templates and walk through our quick and easy process to make your budget and cash forecast. If it seems to you that September is too early to begin thinking about this, here are four reasons why you need to begin this now:
- How many opportunities have you missed in 2020 because you have incomplete and inaccurate business financials? Were you able to apply and receive a PPP loan very quickly or did your business struggle because you still didn’t have your tax return completed? Did your business meet the criteria for the Columbus/Franklin County COVID Recovery Fund? You may have missed out on a $10,000 grant and $20,000 loan simply because you couldn’t answer the question of what your April 2020 revenues were compared to April 2019.
- Everything you do as a business owner in the next 60 days from September to the end of October is going to make or break the 2020 year for your business. The sales efforts you do now still have a chance to impact 2020 and those you undertake through the end of the year will determine the start of 2021. Get a handle on your business forecast now so you can make adjustments and goals for your business to flourish.
- Taxes have the potential to make or break your business, specifically income and self employment taxes. Have you been sending in quarterly tax estimates? Do you have any idea how much in taxes you are likely to owe or have potentially overpaid? Your budget and cash forecast will help you make an estimate of profits and give you the opportunity to make year end investments/deductions. Smartly planning these will allow you to reduce your tax liability for your fourth quarter estimate paid in January OR the final bill due next spring. Almost all of these spending adjustments must be made in this tax year so start figuring this out now rather than scrambling at year end.
- Do you have any idea how many months your business can survive, and more specifically how long you have the ability to pay yourself an owner draw or salary? Without a budget and cash projection you can’t accurately answer this question. Additionally, a budget and a cash projection give you the opportunity to evaluate all of your costs and revenue streams for making strategic decisions to increase your business profits. Increasing your profits is about more than just padding your pocket as the owner. It’s about building up cash reserves so your business can sustain through the peaks and valleys. You may need those funds for materials, supplies, and payroll during boom times as well as to carry you through a cash shortfall in the lean times.
A successful entrepreneur isn’t just somebody that has a great idea and is willing to work hard. Those attributes are certainly essential, but your success ultimately depends on your ability to “manage the business”. There are many demands for your time as the business owner, but developing a budget and cash forecast is an essential function in your role as the owner. If your business is very small or just starting out, you might not be able to afford a CFO or a Controller to manage these fluctuations on a daily basis. You might be the only one with the business insights to create and evaluate your budget and cash forecast. Cultivate Works is our process to help you launch and grow your business, and managing your finances is a crucial part of this. Register for our workshops to keep building a better business.