Getting a bill for an unexpected expense can put a significant dent in your business’s cash flow. Here are some tips to be proactive in managing a surprise bill that comes your way.
- Know what you have. The best advice is to be prepared for the unexpected. Always know how much cash you have in your bank account at any given time. Stick to a consistent bank reconciliation schedule. Conventional wisdom suggests reconciling your bank account with bills paid and revenue received once a month. If your business doesn’t have a significant number of transactions, you could reconcile once every two or three months. Regardless of when you review, the goal is to be consistent.
- Create a 12-month rolling forecast. When you create a 12-month rolling calendar, it projects cash out twelve months. Then each new month you drop the prior month and add another month one year out. This type of a forecast will reflect the ebbs and flows of cash throughout the year and identify times that you’ll need more cash so when a surprise bill shows up, you know exactly how it will impact your ability to pay it.
- Build an emergency fund. Getting surprised with an unexpected business expense isn’t a matter of if it will happen, but when. Set money aside each month into an emergency fund to be used only in case of a significant expense. A longer-term goal is to save enough money to cover 3 to 6 months of operating expenses for your business.
- Partner with a business advisor. Even small businesses sometimes need help keeping their cash flow in line while avoiding unexpected expenses. Give us a call if you have any questions about organizing your business’s cash flow and preparing for surprise expenses.