robyn pearson



november, 2002

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Jenny Brown, of Brown's Gourmet Cellar, is conferring with me regarding the preparation of their cash flow budget for this year.

"We have been going through this process for some time now," said Jenny, "and I certainly know the value of having those budgets in place. We use the figures to manage our cash requirements. For example, we have some substantial regular orders form account customers. If they do not pay within our regular payment terms, this is reflected in the cash flow budget and the bottom line amount of cash at our disposal. We know than that it is time to tighten up our trading terms. This is just one instance. Can you tell me about other uses for the budgets?"

"As you know, Jenny" I replied, "your cash flow budget forms an important part of your business plan. The preparation of the budget for you plan will provide information about the extent of cash resources available for the operation of your business, and any changes to the business that may be included in the plan. For example, you might be about to add a new product to your business, and want to know the viability of doing this. The other interested people in your cash flow budget are your lenders. If you operate an overdraft, or if you want to negotiate a loan, your lender may adjust their repayment conditions to accommodate the changes in cash flow."

"Certainly and important document," said Jenny. "We prepare ours annually, but from your experience is that the norm?"

"For small business that is fair," I said. "The budgets should be changed as circumstances change during the year, but if you were presenting figures to a lender, you would most likely be asked for three year projections, not one."



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Last modified: 03/04/2014