How to Budget for a Small Business

Cash is king. Liquidity is the single most important aspect of a
business; it is the life blood keeping your business alive. Liquidity
can be found in several ways:


External Sources:

• Equity: The initial period most business involves a certain amount
of cash burn. Estimate how long you believe you will generate more
expenses then revenue, double that number, and try to start your
business with that amount of equity; things always take twice as much
time and money as you think.

• Line of Credit. It’s always best to get a line of credit when you
don’t need one. A line of credit will help you fund the time-gap
between paying for inventory and receiving the cash from the sale of
your product.


Internal Sources

• Collecting A/R faster: hire a dedicated collection person. Revenue
means nothing in the absence of collections, and you’ll likely be too
busy finding new business.

• Turn inventory faster: if you have any stale inventory, sell it for
a discount. So long as you sell it above cost it won’t hurt you, and
the liquidity boot may come in handy.

• Pay A/P slower. Generally not a good idea, but in a pinch call
your vendors and let them know you need to hold a payment for a couple
weeks. A courtesy call will go a long way; you wouldn’t want to be
surprised by a late customer payment.


To preserve liquidity you should do the following:

• Create a 13-week cash flow forecast to ensure you don’t run into
any unforeseen cash flow problems. Keep a weekly spreadsheet of your
projected cash flow side by side with actual cash flow. This is
basically doing a cash-based weekly financial projection. 13 weeks
ensures that you always have monthly/quarterly debt payments forecasted.
Look at your A/R aging report to determine when cash is coming in, and
look at your A/P and checking account to determine when cash is going
out the door. If there is any shortfall, be sure you have room on the
line of credit.

• Finance equipment purchases. Even if you think you have enough
cash to pay for new vehicles, equipment, etc. with cash, you may need
that extra liquidity down the line; a little extra interest expense is
worth the peace of mind that you have excess liquidity to survive and


For further information, contact Brandon Hinkle at  Brandon is the Co-Founder and CEO of, a free online matchmaker between banks and small businesses seeking debt financing.