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5 Key Strategies For Startups On Mastering Budgeting & Cash Flow

5 Key Strategies For Startups On Mastering Budgeting & Cash Flow

Picture a small boat navigating a vast and unpredictable ocean. Without a clear plan and sense of direction, the boat in a choppy ocean would be tossed and turned by the waves, putting its passengers and journey at risk.  In many ways, small businesses navigate turbulent waters when it comes to their financial journey, as they must steer the complex and dynamic marketplace while ensuring their business’s stability and growth. 

Over two-thirds of small businesses have admitted to encountering financial challenges, with 43% citing management of operational expenses as the biggest challenge. 

According to a study, budgeting and cash flow management are significant pain points for most small businesses since 86% state that they would need additional funds if revenues were lost for as little as two months. Mastering the process of budgeting and cash flow management can help entrepreneurs and small business owners go a long way in achieving their desired business outcomes. 

Below, we’ll discuss the best strategies you can incorporate into your business to be successful. 

Budgeting For Small Businesses 

The first part of managing a small business’s finances is developing a budget. There are several steps for business owners to track and monitor their budget and, subsequently, the health of their companies and those are:

Gather Insights  

This is the first step to creating the budget. It involves gathering data relating to the financial and operating metrics of the company. It includes collecting the income statement, balance sheet, and statement of cash flows from the historical financial records, looking at historical sales projections, and understanding the industry benchmarks. 

Entrepreneurs can then gauge essential metrics, such as customer acquisition costs, inventory turnover, and the lifetime value of a customer. This data is necessary for creating future revenue projections and making informed decisions on undertaking new projects.  

Segregate Costs 

Small business owners need to separate the fixed and variable costs in a business to understand the firm’s financial flexibility. Fixed or overhead costs remain constant, such as rent and employee salaries, while variable costs fluctuate based on business activity, such as material costs and marketing expenses. Small businesses need to minimise fixed costs to a minimum and remain financially flexible in case of adverse economic uncertainty or a fall in demand. 

Zero-Budgeting 

Some firms consider this approach extreme, but it can work wonders. The zero-based approach starts with a clean slate, allocating every rupee based on a company’s current priority, ensuring that the resources are being used effectively. 

The founder challenges all historical data and creates a budget based on the current future projections for sales and fixed and variable expenses. Zero-based budgeting approach helps draft a realistic budget for the present. 

Understanding Cash Flow Management 

While budgeting ensures that the organisation’s financial health remains healthy over the long run, cash flow management techniques help a company understand its short-term needs. Tracking the cash inflows and outflows helps maintain enough liquidity for the organisation to meet its short-term obligations like salaries, rent, and interest payments. Furthermore, cash flow management practices in an organisation enable businesses to develop accurate budgets and financial projects while increasing financial flexibility. 

Improving A Business’s Cash Flow

There are a few ways for businesses to improve their cash flow.  

Conclusion 

It’s no secret that over two-thirds of small businesses face financial challenges, with budgeting and cash flow management being the most significant pain points. However, businesses need to understand that by employing the right tools and strategies, they can mitigate the challenges, making their journey smoother and more successful.

Regular monitoring and tracking of in-house cash flows and staying abreast of developments in the market are critical to improving cash flow management and making informed decisions. With sound strategies and practices in place, small business owners can successfully navigate the complexities of the marketplace and reach their financial goals.

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