Maximizing Profitability: Discover the Benefits of Small Business Cash Flow Budgeting

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The allure of owning your own business revolves around the excitement of launching a product or service, monetizing your ideas, and offering people what they need to make their lives better. Small business owners understand the importance of focusing on the operations side of the business, your product or service, or your great customer service. But too often, the importance of money in making those dreams a reality isn’t noticed until it’s too late. 

As an entrepreneur, you are always busy running the business, and it is too easy to overlook managing your cash flow. As long as there is money in the bank, things are good, right? Unfortunately, that is not the case. Cash in the bank fluctuates daily, and if you aren’t keeping a close eye on expenses, upcoming tax payments, or future investment needs, you will soon find out you may not have the nest egg you need to keep the doors open.


Studies have shown that only 50% of new small businesses manage to survive up to five years, and only 33% will make it past a decade. Not very encouraging statistics, are they? Why do so many businesses fail? A U.S. Bank study cites the reason 82% of businesses fail is not having enough cash.

Hope for the Best, but Prepare for the Worst

Covid was the kind of crisis most of us had never before experienced, causing many business failures. The world had turned into an unpredictable, scary place with new rules that sometimes didn’t make sense. Basic elements for business survival were no longer available for certain industries. How does a business continue without a predictable revenue stream or without employees? How do you prepare for the unknown?

Working as a Manager of Financial Planning during the first quarter of 2020 meant I was responsible for the company budgeting process. The executive management team I worked with had been in business long enough to go through several market downturns in our industry. When the economic shutdowns began, leadership’s gut instinct was to immediately begin going through countless budget scenarios to determine the best course of action for the rest of 2020. If the company could make it through 2020, maybe 2021 would see everything return to “normal”. 

No one on the management team was comfortable with where these decisions would lead.

We looked at closing one or more of the divisions, cutting production, and layoffs. Would we still be able to meet our sales commitments? Should we cut pay instead of doing layoffs? Should we do both? We even had one scenario titled “Doomsday” just in case the business world as we knew it came to an end. This budget process went on for several weeks and was the most stressful round of budgeting I had experienced. Usually, budget scenarios are done to estimate the best course of action for profits. But this time, the focus was to have as much cash in the bank as possible by the end of 2020.

Project Your Actual Cash in the Bank Balance

With each scenario, we were projecting the actual cash in the bank, looking for the right course of action for the company to survive and have enough money to restart the business as quickly as possible once the Covid restrictions were lifted.

Some tough, unavoidable decisions were made based on the work that was done. But I’m glad to say that the company was able to bring employees back and slowly restart normal operations before the end of 2020. If we had not acted as quickly as we did, the company would probably not have had the money necessary to make it through the year.

Thanks to that stressful experience, the company now keeps a rolling cash forecast as part of the routine monthly updates. An estimated bank balance months in advance allows for more efficient and timely cash management decisions. 

If you can forecast your bank balance in order to survive a crisis, think about what you could accomplish in good times by planning ahead with strategic insight. Uncertainty and challenging economic times are always the most obvious reasons to plan ahead with your money. But there are other reasons always to have an eye on your future cash balance so you not only weather a crisis but also grow your small business.

With Money in the Bank You Can:

1 – Make Necessary Upgrades to Your Business

You can spend the money needed to grow your business by investing in the necessary tools to keep your company running smoothly and as efficiently as possible. Whether your needs are as small as a computer for your home office or more pricey manufacturing equipment, you should plan how you will pay for these kinds of investments for your business. 

If the numbers show you still won’t have enough cash, it may be a good idea to try to arrange to finance all or part of the money that’s required. If you make financing arrangements, be smart and ensure you will have enough incoming cash over the loan to stay current on the monthly payments. Or even better, pay it off early!

2 – Pay Yourself a Predictable Income

Predicting the future cash balance for your business will have the added perk of helping you determine what your personal cash in the bank could be. 

Pay yourself a living wage, or you are doing well enough to give yourself a much-deserved raise as your business and bank balance grow! Your goal should always be to have the money you need to keep your personal expenses current, plus your little nest egg. Managing your business without the added worry of taking care of personal finances is much easier.

3 – Give Your Employees a Raise

You don’t want just to pay yourself. If you have employees, show them your appreciation by sharing in your upcoming successes. Paying a competitive wage in today’s labor market will increase the likelihood you can recruit and retain quality talent. 

In the long run, it is usually less expensive to pay a little more for good employees than to constantly deal with employee turnover and always train new employees. A pay increase or improved benefits can go a long way to building a positive work environment with happy, loyal, and productive employees!

4 – Invest in a Marketing Campaign

Putting money into equipment and people is not the only smart investment. You should also allocate money for marketing or advertising to grow your business. There are many options to market yourself in today’s connected world. Investing in a marketing or advertising campaign is investing in yourself and your future.

Don’t worry if you aren’t savvy when it comes to social media marketing. Hire a social media manager to handle this type of marketing so you can focus on the increased business this will generate. Another popular alternative is to hire a social media service for a monthly fee.

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5 – Give Yourself Peace of Mind with a Safety Net

Build a cash cushion! Even though this is at the end of the list, it is the most important reason to project your cash balance. If you can accurately forecast your cash position, you are more likely to weather the next crisis and be one of those businesses that last longer than a decade.

A good rule of thumb is always to maintain enough cash in the bank to cover expenses for three to six months. This number will depend on factors that are specific to your business, seasonality, what growth stage your business is experiencing, and availability of outside funding. If you have some months that average higher cash expenditures, be sure to include those months in your calculation. 

Alleviate stress by knowing your business has the money necessary not just to survive, but grow and prosper the way you envisioned from the start! Budget your cash flow and take better control of the future of your small business.