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How to know when to spend

In business, cash is key to successful financial management, therefore it’s essential you have the most effective tools on hand that will help you know when it’s best to spend or save, and how to respond when the going gets tough.

Most businesses would do a cash flow budget at the beginning of the financial year to plan spending, work out overdraft and finance requirements, and to look at where savings can be made, debt paid off and any capital expenditure that might be on the horizon in that 12-month period.

This type of budgeting has shortcomings though – a fixed period budget has an increasingly short window as the year progresses, so you lose the longer-term view which can have implications for anticipating and preparing for financial ups and downs. In today’s volatile environment it can leave you vulnerable to unexpected market shifts. It also can end up being a cookie cutter exercise where you just repeat last year’s budget/actuals without ever really coming to grips with the nuts and bolts of managing your finances in the real world.

The solution to the pitfalls of this traditional budget is the use of a rolling forecast. A rolling forecast is a more powerful way of looking ahead as it is reviewed and extended on a regular basis –the details of which can change depending on your business model, industry sector and finance requirements.

A rolling forecast is always taking a longer-term view and can be used alongside your fixed term budget to give you a really robust management tool to keep your business on track.

Timing of expenditure can be critical in terms of debt management and tax implications, so having a well thought out forward view that always takes a 12-month view of annual cashflows can support nimble decision making in the tougher times as well as giving you the confidence to grow your business, make capital purchases or pay down debt when things are looking good.

And while there is always some crystal ball gazing in any kind of fiscal forecasting exercise, a rolling forecast is often more accurate than a fixed period budget, so it will help with longer term management decisions by giving a modicum of confidence when looking further ahead.

Rolling forecasts do take more time to prepare and manage, but this is offset by the value of the information and the increased accuracy of your forecasting – all leading to better management decisions and, hopefully a stronger, more viable business.

If you think a rolling forecast could help your business, have a chat with us at Your Success or come to one of our hands-on workshops – we can show you how to develop and use a rolling forecast without raising too much of a sweat.

2021 Workshop Series

Facilitator: Luke Swart, Accountant
Date: August 10th and 12th

Learn why a rolling forecast is better than a traditional budget, enabling you to understand how and when to best spend, or save your most important resource, your cash.

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