It is important to break your annual cash budget down into shorter time units because it will help with financial planning and have a positive effect on the company’s bottom line. The first step in any business, whether it be for profit or not-for-profit, should always be to create an accurate budget.
It is essential that this process be done at least one year in advance so there are no surprises when the end of the fiscal year rolls around. This way you can accurately forecast how much money you need to make based on what happened during last year’s revenue cycle.
That way, if sales take a dive, you won’t find yourself without enough money to pay employee salaries or keep up with other critical expenses. This is where break down your budget into shorter periods of time becomes important. The company should create a monthly cash flow plan that breaks up the annual budget and divides it by 12 months so there are no gaps in between when money can be spent.
With this system, you’ll know exactly how much money you have coming in each month because of course January’s profit won’t come until July for most companies due to seasonal sales cycles. If there’s not enough income from the last fiscal year then adjustments need to made right away or else the business will find itself struggling financially and eventually failing all together if changes aren’t made quickly enough. Retailers who run their businesses based on short-term budgets tend to do better.