This is according to Gerrie van Biljon, executive director at Business Partners Limited (BUSINESS/PARTNERS) who says that without a realistic and well-managed budget, a business is much like a boat without sails – without direction and headed nowhere.
He describes a cash-flow statement as a vital management tool that should be referred back to constantly, and not only on an annual basis. “The control of cash flow, adherence to payment deadlines and the management of creditors and debtors are all fundamental aspects that will determine the success of a business,” says Van Biljon.
Van Biljon provides entrepreneurs and business owners with the following tips to stay on top of their finances in 2016:
Keep it accurate
Entrepreneurs are often eternal optimists, even when it comes to budgeting. Overestimated income can however be as harmful as having no budget at all, and can provide a false sense of security. Van Biljon explains that one of the best ways for business owners to project realistic income is to base figures on historical sales data, and ensure that deviations from such data are based on realistic factors.
Refer back to historical financial statements
Instead of only conducting an annual financial review, entrepreneurs are advised to refer back to their historical financial statements on a regular basis. This will help predict sales dips and rising expenses before it is too late. Regularly updating a budget and a statement of cash flow will enable business owners to keep an eye on where money is spent, and allow them to cut back where applicable.
Simple is better
Van Biljon says that budgeting need not be a complicated exercise for business owners and a simple spreadsheet is more than enough to manage an annual budget. Although employing an accountant to draw up the financial statements is an advantage for some entrepreneurs, they should take care to ensure that they know exactly what the accountant is doing at all times and that they understand the statements.
Sensible budgets will help business owners plan for challenging financial times, and provide guidance for when there is extra cash available. Plans on how to cope when the business suffers an unexpected knock in sales or income should also be included.
As business owners prepare for an uncertain year ahead, it is more important than ever to keep a tight hand on budgets and cash flow. To assist business owners in this regard, the BUSINESS/PARTNERS Entrepreneurs Growth Centre harnesses the business expertise, skills and wisdom of senior business and professional people to offer free advice and guidance to entrepreneurs.