The importance of cash budgets for all types of businesses and individuals cannot be overemphasized. The following six steps to cash flow control are critical.
1. Create a monthly cash flow budget. Determine the amount you need to achieve your business and personal financial goals, including enough to pay taxes and fund your retirement.
2. At the end of each month compare cash infows and outflows to make necessary adjustments to cash spending or saving.
3. Accounting software can help automate the process.
4. Set aside cash each month to pay your taxes on time.
5. Make quarterly contributions to a retirement account.
6. Establish a line of credit with a bank, or investigate other short-term financing sources, well before you think you'll need the extra cash.
Instructions
a. Assume for item number 2 that a business's actual cash flows are not enough to achieve its business goals and some necessary adjustments must be made. Name at least four adjustment procedures that businesses can use to equalize cash flows.
b. Write a short paragraph discussing how cash budgeting can be critical for your ongoing success.