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Understanding cash flow for a design business

March 18, 2014 • By

As a graphic design business owner, cash flow is your lifeline. It’s the equivalent of the caloric intake for your body. A proper balance of in and out is needed to avoid getting yourself into financial trouble. Treating your income like fuel for your business is the key to getting to a proper income balance. Just as with many things, too much going in or coming out can be a sign of trouble.

According to the Houston Chronicle, understanding your business’s financial footing can give you the power to make sure that your business survives all the twists, turns, and unforeseen pitfalls that tank others.

Why have a budget

Because money is so important to a business (especially for a one-man-show), understanding your assets, liabilities, resources, debts, and credits gives you the game plan that you’ll need to follow in your business. You’ll be able to manage your income properly and avoid overspending or underspending, either of which can be crippling. Underspending means that you are going to starve yourself out of becoming a better competitor in your market. If you can afford it, why not get the best people and the best assets? However, if you overspend and splurge on that dynamic sales team, you won’t have enough money to get your product out. It’s a delicate balance that only a good budget can manage. With a budget, you can better monitor your performance and you’ll have a baseline of financial expectations. If your expected results really vary from the norm, you’re better able to pinpoint the problem and fix it. Finally, if your business is on the verge of growth and you need financial influx of cash to take it to the next level, having a sound financial plan will make investors and banks worry less about getting their money back. Consider your budget and your fiscal plan as your best foot forward to generating backers to your future. If you are unsure about how to come up with an impressive cash flow template, there are templates available online that can help you showcase you budget in a much more efficient manner to potential backers.

How to budget

There are three basic forms of budget estimations that should go into your business financial plan:

  1. Cash Flow – Your business will have expected income and expenses such as sales, inventory purchases and other operating expenses. The cash flow is a record of your income and assets less all of your outstanding liabilities. These liabilities include employee pay and other business expenses such as insurance and taxes.

  2. Balance Sheet – Here is where you take stock of the businesses assets and liabilities, with the overall number being the net worth. You can track the growth of your business over the financial year and see where the money is coming from and going to. This differs from the cash flow in that the cash flow is a moving record. The balance sheet is more like an addition and subtraction sheet.

  3. Profit and Loss Statements – Once you’ve taken a look at the estimated expenses and sales for the coming year, you can calculate your target income, which is something that’s crucial to investors and banks.

As you’re preparing your budget, it’s important to make sure that you allow for unexpected expenses. You should have enough of a financial cushion to work with if your supplier runs out of a particular product, for example, or if your site or computer experiences a technical glitch. You’ll also want to make sure you use real numbers based on any historical data you can gather.

The importance of cash flow analysis

Because cash flow is vital you’ll want to put in extra effort to understand what’s going in and coming out of your business. According to Reference for Business, developing a cash flow analysis report is an important independent accounting of cash as well as non-cash items, as they change over time. Non-cash items include equipment, property, even software, all of which needs to be maintained over time.

Planning for growth

Once you’ve gotten a handle on your business finances, you can create a financial strategy for growth. You’ve maintained your momentum and are looking forward to when your business will be poised for expansion. You can take a look at your organization to figure out how to combine the resources you have to put yourself in the ideal position for growth. By looking at your niche, you’ll have the ability to figure out what strategies and tactics you can use to pull everything together.

Finance is not an easy subject to deal with for someone who may not have the experience to handle it. You can find free templates that you can use to plan for your startup, established business or even your nonprofit organization. There are also a lot of free or cheap templates that work to make it easy to plan and plot your financial course. Getting a handle on the money part of your business gives you a lot more freedom to move in whichever direction is best and most profitable.

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