June 17

How To Effectively Monitor Cash Flow And Budgeting


Cash flow is vitally important for any business to operate sustainably and profitably. However, a company can’t maintain an accurate view of its financial health without effective budgeting and forecasting. As a result, you can’t make informed decisions that drive growth. Here, we look at cash flow and budgeting and how monitoring both helps you manage your business more effectively. 

What’s The Difference Between Cash Flow And Budgeting?

what's the difference between cash flow and budgeting

Cash flow is the money that travels in and out of your business, while budgeting refers to managing and allocating that money. They work together for a smooth business operation because by monitoring your cash flow, you can forecast income and understand the expenses that income goes towards.

With this understanding, you can create a budget that allocates your spending and allows you to record how you fare each month. You then understand whether you are coming up short, breaking even, or making a profit, and can make decisions to improve your company’s performance. 

How Does Monitoring Cash Flow Help Your Business?

how does monitoring cash flow help your business

Budget and cash flow forecasts provide the numbers you need to make accurate projections and determine the necessary steps to improve profitability. The better you understand the numbers, the better you become at making predictions to inform your business decisions based on sales cycles, seasonal ups and downs, spending, etc. For example, identifying your high season allows you to budget for overtime or seasonal help, and vice versa in the lower season. You learn how much you earn, how much you spend, and how long it takes to earn the cash required to invest in growth. 

How To Effectively Monitor Cash Flow And Stay On Budget

how to effectively monitor cash flow and stay on budget

There are several ways you can become more effective at monitoring your cash flow and staying on budget, including: 

Keep on top of invoicing

Your accounts receivable is the lifeblood of your business. Ensuring you keep up with invoicing means you can always cover your expenses. Money “on the books” and money in your hand are very different. You can have hundreds of thousands owed to you, but it does little to cover your costs. Consider the payment terms you use for customers and look for ways to improve them so the cash keeps coming and you either eliminate or reduce your time spent waiting for receivables. Also, get tough on debt collection with immediate follow-up on unpaid invoices so you don’t lose track of money owed you.

Monitor inventory

Monitoring inventory spots the hot sellers and space wasters so you become more profitable. Inventory that doesn’t convert into sales must be discounted and removed from stock to limit losses. You can then allot more money to hot, high-demand inventory to increase revenue and limit the need for discounts. 

Leverage credit wisely when cash flow is positive

Budget and cash flow planning provide the numbers needed to evaluate exactly how much debt you can take on before it gets dangerous. When you seek a line of credit when times are rough, lenders are less inclined to provide the credit you need. Although you want to avoid debt, borrowing money when cash flow is positive ensures that should you need it, you’ll have it – to invest in growth or weather the ups and downs of seasonality. A line of credit is also more affordable from an interest standpoint compared to relying on credit cards.

If a line of credit isn’t an option, you might find a new lower-interest small business credit card or even be given a grace period for a limited time so you can meet your short-term cash flow and cash budget needs. 

Continuously improve efficiency

An attitude of “if it ain’t broke, don’t fix it” can cost you. By continuously monitoring financial performance and looking for ways to improve efficiency, you can limit the staff you need while improving productivity. Can you outsource aspects of your business functions more affordably than paying staff? Can you use seasonal workers to keep a leaner business? Can you use automation to streamline processes? 

Have a strategy for both cash shortage and surplus

Cash flow forecasting and budgeting helps you formulate a plan to maintain healthy cash flow regardless of the scenario. When you have extra cash, you can consider short-term investments or use it to pay off debt. When you face a shortage, you can decide if you can manage more debt, seek payment on outstanding invoices, or negotiate a slight payment delay to vendors. 

Assess your accounts payable

Although you want strong relationships with your vendors to avoid paying interest or late fees, you can also find ways to use vendors to inadvertently “lend” you money. Proper budgeting and cash flow management includes assessments of your accounts payable to reveal potential ways to help create a more balanced cash flow via restructured payment options, renegotiating costs for supplies you buy in bulk and standing orders, reconsidering your vendors through cost comparisons, etc. These tactics can improve outgoing cash with better terms and pricing.

Restructure your payroll

Processing payroll takes time and costs money. Monitoring cash flow helps determine how your payroll schedule impacts your finances. You might consider switching to a bi-weekly or bi-monthly schedule or working with a bookkeeping service to reduce demand on your team. 

Track spending

Budgeting allows you to monitor spending to understand where to allocate money each month. Are you repaying debt to maintain a good credit score? Are you dipping into credit to pay vendors? Are expenses increasing, decreasing, or consistent month to month? By tracking spending, you can determine short-term needs and adjust long-term plans if required. You can also see when and where you’ll have profits to save and grow capital, whether for a rainy day or to invest in growth. 

Embrace tax planning strategies

Many small businesses don’t understand the deductions and credits available to reduce their taxes. A tax strategy developed by a corporate tax preparation service for your personal and corporate finances minimizes your tax obligation, ensuring you make better business decisions. 

Consult with a fractional CFO

A fractional CFO provides outside oversight of your financials and offers objective advice focused on improving cash flow and business health. They contribute to all areas of your business processes by creating a strategy and budget focused on efficiency and profitability. They will recommend technology to help you manage your finances with a clear overview of your accounts payable and receivable so you can project cash flow and create a budget with smarter allocation. You worry less about money and focus on daily operations to create a profitable business.

Monitoring cash flow and maintaining a detailed budget allows you to reduce unnecessary spending, improve efficiency, and leverage forecasting for improved cash flow predictions and budget allocation.

Whether you need help with tax planning, corporate tax preparation, bookkeeping, or Fractional CFO services, Intrepidium has the expertise and experience to help you succeed. Call us today at 778-800-7976 or click here to schedule a consultation.

Ryan Roch, CEO Intrepidium Consulting Inc.

About the author

Ryan Roch is the CEO of Intrepidium Consulting, offering customized Bookkeeping, Accounting, Fractional CFO, and Tax Preparation Services to small and medium-sized businesses. With extensive experience in financial reporting, strategic planning, budgeting, compliance, and cash management, Ryan helps clients overcome financial challenges, gain clarity, and achieve their growth objectives.


budgeting, cash flow, financial health, profitability

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