Preparing a Cash Flow Budget
When a crisis event first affects your business, an important step is to develop or revise your budget for the business. Budgets are the expected future activities of a business, measured in financial terms. They are a kind of financial summary of all anticipated plans and actions for the business such as marketing, staffing, human resources and operations.
There are essentially two types of budget:
The cash flow budget estimates the future income and expenditure of the business, revealing any periods where it may fall short of cash.
Because cash is the life blood of a business and cash flow is critical to survival, the cash flow budget is the most useful operational budget for a tourism emergency. It is also the most commonly requested budget when seeking finance from a bank or another financier.
By developing cash flow projections for several months in advance, you can estimate when the business will be short of money and take appropriate steps beforehand.
Irrespective of the nature and duration of the tourism emergency, it is recommended that you prepare, and continue to monitor, an emergency management cash flow budget using the following steps as a guide. Find a cash flow budget template in the Resources section.
Decide on the timeframe that the emergency might have a significant impact on your cash flow. This might be weekly, fortnightly or monthly.
Estimate the number of customers or sales units (for each of your areas of income – e.g. meals, tours, accommodation, equipment hire) you could expect to attract/sell for a weekly, fortnightly or monthly forecast period. Find an Estimates to Assist with Cash Flow Budget table in the Resources section.
Multiply the customers/sales units by the actual (or average) price of each unit, to give the likely sales income.
Calculate when this sales income will actually be paid to the business’ account, taking into account any deposits, cash payments, credit card payments, etc.
Identify and add up all the expenses that must be paid in each week/fortnight/month. Separate the expenditure into fixed costs (those that will occur regardless of your situation) and variable costs (those that are linked to the number of sales).
Calculate the surplusor deficit for the week/fortnight/month.
“While business is sound and going through good times, put in place financial arrangements to help you in the case of an emergency. Don’t wait until the emergency has struck and then go begging to the bank for money. Set up overdrafts, etc. when your business is in a positive growth cycle. This way you’ll get a much more satisfactory arrangement.”
Review the number of sales units.
“It’s important to keep advertising your business after a crisis. Don’t stop marketing just because your cash flow is impaired.”
Review when the sales income is likely to be received into the business.
Look at each expense item and ask whether any expenses could be deferred, reduced or avoided altogether without impacting on your business’ reputation or future sales.
When a satisfactory and manageable result is obtained, finalise and print out the budget.
|Last Updated ( Thursday, 28 January 2010 )|