If you want to stabilise your finances and grow the business, working to strict budgets becomes a necessity. Managing the cashflow twists and turns of a project can be hard work. But it’s easier to do when you have an agreed budget and can track your spending and performance.
So, what’s the best way to stay in control of the budgets you’ve set? And how can you manage your cashflow position to make sure there’s always enough cash to fund the project?
Understand the costs of each project
To keep on top of costs, overheads, staff expenses and general spending, you need at least a ballpark figure for this expenditure. Ideally, you’ll want to be as precise as possible with these costs.
Run through the project from start to finish and highlight every point where there will be costs to incur. It might be the cost of your raw materials. It may be the cost of buying new equipment. It could be the payroll costs for the people actively working on the project. Break everything down and come up with a total expense for the project. This is your starting point.
Set your budget and track it over time
Once you know your baseline cost for the project, you and your team should decide on the amount of funds to allocate to the budget. Your baseline cost is a starting point, but don’t forget to include extra for specific contingencies including if the project overruns, increase in cost of raw materials and extra staffing needs.
Agree on a clear budget and set up your finance system to track spending against this budget. With a cloud accounting system at the heart of the business, it’s very easy to create a budget and then record and track your spending over time.
Keep a close eye on budgets and project cashflow
One of the big things to remember is that a budget is not a static thing. You’ll obviously aim to stick to your initial costs, but prices and availability will affect the total spend over time. Because of this, it’s vital to not just write the budget and then forget about it.
Keep a close eye on your budget performance and the cashflow for each project. Being able to review this performance, in real time, should help you avoid overspending, or running out of cash for the project. And when the cash is getting low, you can get proactive and look at ways to top up the budget, or reinvest spending in other areas of the project.
Take action to maintain your positive cashflow position
Balancing the cashflow scales on a project isn’t easy.
- Setting up key metrics for each project, to measure spending, cashflow and progress.
- Run worst-case and best-case cashflow scenarios, so you’re prepared for anything.
- Regularly reviewing your spending and looking for areas to make savings.
- Taking on finance facilities to plug any cashflow holes as they appear.
If you’re thinking about scaling up your established startup, please get in touch. We’ll help you build solid, workable budgets that can be easily tracked through your accounting system.
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