In order for lenders to award credit, they need to see detailed budgets, including cash flow forecasts. These have to include realistic projections, not guesses at profit and revenues. Cash flow projections are especially important as they show how small businesses intend to pay back their loans.
Even if a Maine-based small business isn’t looking for credit, they should still spend the time on a well thought-out budget, including cash flow projections. It’s important for the ongoing operation of the business. By preparing an effective annual budget and comparing it to actual financial performance, business owners may find certain situations that need to be addressed.
As an example, say a construction firm is expecting $1 million in contracts, but is actually only awarded half of that amount. This is an indication that they need to review their bidding procedures; maybe the company needs to tighten up its bidding process, have someone review the work of the estimator before bids are submitted, and review other internal procedures to get more work.
When actual performance is reviewed, business owners may find expenses that are out of line and may want to institute controls, safeguards, or even a bonus system for those responsible.
Effective budgeting required knowledge and experience with projections, job costing, and a host of related financial matters. Filler & Associates can help Maine-based small business owners develop meaningful and reliable budgets to help their companies now and in the future.