How to start with cash flow management Part 3 - Fixed Costs
In usual times, cash flow is essential - in unpredictable ones, it can be critical. It can decide whether the business is open or not.
These are not stable times.
Inflation has thrown entrepreneurs out of balance,
Supply Chain issues give us even more unforeseen challenges,
The Russia-Ukraine War caught us by surprise,
And as a result, many owners had to start thinking differently - and more resiliently - about managing cash flow.
My advice: "Prepare for the expected and Plan for the unexpected."
In my last article, I have shown you how to categorize your income and look for collection situations. In this one, I will help you with expenses categorization.
You have now successfully finished the first steps in cash flow planning. You have collected all information, started with income, and divided them into categories. Income is important for cash flow because it will give you an idea of the number of expenses you could have.
Remember, some companies make money, and others save. Once you have an idea of the income that is likely to come on a given day, you can start with expenses.
It is good to categorize also the expenses, and we suggest starting with Fixed Costs. The first category would be the recurring fixed value expenses like Rent, Salaries, Phone, Car rental, some suppliers, loans, and government (such as social security, and health insurance contributions). Every expense in this category must have the same value every month.
Once you have written all your fixed costs, you will have an idea of how much you need every month as a minimum amount.
This will be a good start on the expenses side of Cash Flow Management.
Send me an email If you need help categorizing your expenses or need help brainstorming new ways of making fixed costs into variable costs.
In the next article, I will help you with how to forecast your variable expenses.
If you think "Cash Flow Planning is difficult!" or "I don´t know how to start!" and you need help, please contact us!
We are here to help!