A professional consultant can help you determine your business cash requirements. He or she can help you work out the amount of cash needed to operate your business during a certain period—for example, three months, six months, a year. You'll need to project your short-term cash flow as well as your long-term cash needs accurately and make sure your business decisions reflect and take into account those needs. The consultant considers how much cash you will need for the following: to cover payroll, pay bills, buy equipment/supplies, and repay loans.
You'll need to prepare projections of anticipated costs. For example, if you are purchasing a new vehicle, check with your insurance agent to find out exactly how much it will cost to insure. Your budget should also include money set aside for maintenance and repairs. This is especially necessary for older equipment , but even newer equipment needs replacement parts. As an owner, you should consider setting aside money for a worst-case scenario. For example, should you become ill and can't work, how would you make your monthly payments? So, in addition to your emergency fund to cover basic living expenses, you need to consider an emergency fund for your business. One way to reduce the risks associated with disability is to obtain disability insurance.
The purpose of making detailed projections of anticipated cash flow is to highlight any point in the future where you will come up short, so that you can take steps in advance to prevent that occurrence. The consultant can determine how much income will come from current operations and how much will have to be borrowed to meet your budgeted cash needs. Another benefit of evaluating your cash requirements is that you may determine there are certain areas where expenses can be trimmed.
If your business is not making money, you may have to cut back on some expenses. Most individuals spend over half their income on three things: housing, food and taxes. Some items are fixed expenses and are difficult to reduce, such as housing and taxes. But other expenses are variable and if you look hard enough you can find ways to cut back these expenses.