All the purchase orders in the world mean nothing without the ability to fill them. Make sure you have the cash on hand to keep your business running smoothly from month-to-month. Learn how to set up a cash flow budget.

1 – Choose your cash budget tool

You have plenty of options:

  • Keep it simple with any number of cash budget templates you can find online
  • Create your own template using an Excel spreadsheet
  • Take it to the next level with QuickBooks Cash Flow Projector

2 – Set a minimum beginning balance

This may or may not be the cash you actually have on hand. However, it is the amount of cash you need to have on hand. Here’s how that works.

Your beginning balance for any new month is your ending balance of the previous month. So, setting a minimum lets you know that, should the previous month’s ending balance fall short, you will need to raise capital to start the new month with the minimum needed in your cash flow budget.

3 – Estimate your total available cash for the month

How much do you anticipate having in the bank to cover your monthly expenses for the new month?

  • Start with your beginning cash balance. Again, this is your ending cash balance from the previous month. (Or, if yours is a new business, the amount of cash you are starting out with.)
  • Determine your expected cash receipts. Do not confuse receipts with sales. You may expect to provide services or send out products that you won’t be paid for another month or two. In other words, only include income you expect to receive before the end of the month.
  • Calculate your total available cash for the month. Add your beginning cash balance to your expected cash receipts. This is how much you have to cover the month’s cash disbursements. Just keep in mind that your total available cash for the month is an estimate. Sure, you know how much cash you’re starting with, but there is no such certainty with accounts receivable. Even if a bill is due the current month, you are always at the mercy of clients or customers who could pay late.

4 – Project your cash disbursements for the month

How much do you anticipate your expenses being for the new month? Be sure to include spending in all the following categories:

  • Inventory
  • Equipment
  • Supplies
  • Labor
  • Overhead
  • Loan payments

Of course, it is equally important to plan for the unexpected. Though there is no way of knowing a specific category or amount for unexpected expenses, you can certainly make an educated guess by looking at previous months and years.

5 – Subtract total cash disbursements from total available cash

This is your estimated ending cash balance.

Not only do you need this figure to be positive, meaning you were able to cover all your monthly expenses. You also need it to be equal to, or greater than, your minimum beginning balance. If it falls short of that goal, you are going to need to raise capital.

6 – Raise capital, need be

If your ending cash balance for the current month falls short of the minimum beginning balance for the next month, raise capital to cover the difference.

You have all sorts of short-term financing options, from bank loans to credit cards, but if you don’t want to take on new debt (and who does?), consider invoice factoring.

Instead of borrowing money you need to pay back, invoice factoring simply pays you sooner on money that already belongs to you. Here’s how it works:

  • A factoring company, like Interstate Capital, purchases your unpaid invoices then collects on your behalf from your customers
  • You get an advanced lump-sum payment up to 90 percent, then the rest of the invoice amount once it’s paid, minus the factoring fee
  • You take on no new debt and there’s no limit on how much you can finance

Most importantly, you’ll be guaranteed increased cash flow – not only to help cover purchase orders but also to pay outstanding debt and to set money aside for savings and investments.

Contact Interstate Capital for a factoring rate quote today.