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Budget and Cash Flow Forecast

Mr. B and Mr. C plan to open an online business selling various household products. They plan to import the goods from overseas, rent a warehouse to stock them, sell via their own and other third party online platform. They will do the delivery themselves within 10 km and will subcontract out the delivery service for over 10km.

After talking to us, based on their particular family and financial situations, we have suggested them set up a new company with each of their family trust as 50% shareholders. But before set up the new company, we strongly suggest them write up a shareholders’ agreement listing out all their understanding regarding financial and managing obligations.

One important element of the shareholders’ agreement is a budget and cash flow forecast for the next two years. We have listed out all the possible cash inward and outward items and timing for them, such as shareholders’ loan, bank loan and sales, purchase, rent, staff salary & super, insurance, utilities, professional service fee, loan repayments, plant & equipments and so on so forth.

We suggest them work out the best & worst scenario to clearly see what sort of financial commitment they getting into to in order to get them best prepared. We suggest them challenge each other on all the figures and timing, and deeply think about a strategy how to run their planned business.

Above is just one of the many situations when budget & cash flow forecast play out an important role. Many other times your lender or landlord might demand you to provide a budget for them as well. A carefully planned budget and afterwards real outcome comparison is a powerful management tool; it can help you to find out where went wrong and where can be improved.