Budgeting

5. Preventive Measures

Drawing up a budget enables you to spot problems before they happen.

5.1 Are you in danger of underperforming?

• Will your forecast costs be too high? Where is there scope for cutting back?

5.2 Does your cash budget show that you are going to exceed your overdraft limit in any month?

How will you improve cashflow?

• Collect sales income faster.
• Delay payments to your suppliers. Would this lose you discounts or damage your relationships with them?
• Arrange extra finance.
• Delay new capital expenditure.

5.3 Are you over-trading?

• The higher your sales, the more money you will need to spend on supplies and other costs - before being paid yourself.
• If the level of sales becomes too high, your business may simply run out of cash.
• There is no point in capturing huge orders, if you run out of cash and go bankrupt.