A cash budget provides a picture of a business’ finances. With clear data, you can see where money flows in and out. However, creating a cash budget for a shift-based business is difficult because expenses fluctuate over a given period.
Learn how to take advantage of a cash budget for greater stability and insight into your shift-based business.
A quick review of cash budgets
A cash budget provides details of a company’s cash flow during a specific amount of time. The main objective of a cash budget is to demonstrate whether your company has enough cash to continue to operate. Alternatively, a cash budget can help you determine how to use surplus funds to benefit your business.
Cash inflows
Cash inflows are cash collections from customers for current sales or collections on accounts receivable from previous sales. Funds your business has received from debt financing can also be considered cash inflows.
The cash inflow section in a cash budget contains:
The beginning cash balance
Accounts receivable collections
The sale of assets
Cash receipts from cash sales
Cash outflows
Cash outflows include payments for operational expenses, repayment of loans, and the purchase of new equipment.
The cash outflow section in a cash budget contains:
Planned cash expenditures
Fixed asset purchases
Dividends
Different types of cash flow budgets
Depending on your business’s needs, the type of cash budget you use can vary.
Short-term cash budgets — Designed to resolve cash requirements on a weekly or monthly basis. These cash budgets project where you should allocate funds and the sources these funds must come from.
Interim cash budgets — Created for a yearly look at a business’s finances. It takes into account elements such as seasonal variations and recurring changes that affect your cash budgets, your normal income, and expenses.
Long-term cash budgets — Allocated over many years, these budgets help you make strategic business decisions based on your company’s long-term forecast and objectives.
An example of a cash budget
Accounting Explained provides an example of a cash budget, which states that Company A keeps a minimum cash balance of $5,000. In case of a shortage, a loan is obtained at 8% annual interest on the first day of the period.
Cash flow pain points for shift-based workplaces
Due to the fluctuating nature of shift-based work, many businesses have unique pain points such as:
Labor costs
While all businesses worry about labor costs, shift work complicates the issue. Staff wages change each pay period, making it difficult to estimate how much is needed when creating a cash budget.
That’s not to mention the unexpected overtime that may occur or planning around slow and busy periods. Improper labor forecasting leaves businesses with too many or too few people working during a single shift. Having too many staff in a shift eats away at the labor portion of a cash budget.
Recommended:5 Ways to Prevent Payroll Mistakes
Cash balancing for registers
Depending on the business, a lot of cash may come in and out of your business daily. You need to ensure you have enough cash in the cash register so staff can easily give change to customers throughout the day. The amount required is difficult to determine without historical data.
Supplies
Supplies can vary in shift-based businesses. For restaurants, costs might include ingredients or various kitchen items needed to make meals. For hospitality, it may mean sheets and towels.
Due to economic factors, the prices of necessary supplies frequently fluctuate. This can alter the cash budget significantly — not to mention suddenly needing more supplies during an unexpectedly busy season.
Low sales periods
While some slow periods can be predicted, most can’t because they’re affected by outside circumstances such as the overall economy or a sudden rise in demand. There could be times when a business struggles to pay its fixed expenses.
If there isn’t enough of a cash cushion or if estimated slow periods are longer than expected, managing a cash budget becomes difficult. This just goes to show how unpredictable these sales periods can be, leaving businesses in a difficult situation.
Slow paying customers
Depending on how your business operates, you may extend some grace for important customers when it comes to paying, so you can continue to have their business. However, this creates delays in your accounts receivable, which then causes a ripple effect for your whole budget.
Competitive pricing struggles
Having products and services set at the right price keeps a business open. However, when a business prices its products and services too low, it minimizes profits. This restricts how much cash you have for business expenses and growth. And in periods of inflation, businesses have to decide whether or not to raise prices to meet demand and risk losing customers.
How to create a cash budget that supports workforce planning
Here’s how you can create a cash budget that’s tailored to the needs of a shift-based workplace.
Step 1: Choose a time frame for your budget
First and foremost, you’ll need to decide how far out you want to plan your budget. As already discussed, most businesses use one of three budget types.
Step 2: List fixed and variable expenses
When first creating your cash budget, keep things simple so you have a solid foundation to build off of. Start by listing all your expenses, noting whether they’re fixed or variable.
Fixed expenses include:
Rent — If you’re currently renting a space, include the monthly rent in your cash budget. Rent stays constant most of the time, so you know what to expect each month.
Loan repayments — Similar to rent, any business loan payments tend to stay consistent and need to be included when creating a cash budget for your business.
Administrative expenses — General office expenses such as telephone bills, software subscription costs, internet, and utilities can go under this line item. Administrative expenses generally don’t increase or decrease by a large amount.
Variable expenses for shift-based businesses should include:
Inventory or raw materials — Raw materials and inventory normally constitute a large amount of cash spent. Stay in contact with your suppliers to find out whether they plan to change their prices soon. This information will enable you to create more accurate cash budgets.
Payroll — Paying employees salaries is usually the second biggest expense for most businesses. Payroll should not only include the base wages but also potential overtime or sales bonuses that could be given out during the specified period.
Advertising — You need to budget for marketing and advertising campaigns across all relevant mediums, for example, social media influencers, radio, and newspapers.
Of course, these are just standard expenses most businesses have — be sure to customize your list of expenses to your business.
Step 3: Track your revenue and payment cycles
Tracking your revenue and payments is essential to creating better cash budgets in the future. Remember, the main purpose of cash budgets is to provide an approximation of your future cash receipts and cash expenditures.
You need to adjust your different financial accounts to portray your desired increase in sales and actual sales. You must also revise your inventory, raw materials, and the cost of goods sold to reflect any increase in sales.
Ensure that you track:
Sales and how long they take to go through
Other forms of income (such as dividends or investments)
Inventory and supply costs
Staffing trends (see how to reduce labor costs)
Step 4: Plan for seasonal shifts
This is what separates cash budgets for shift businesses from other types of business — preparing for seasonal shifts. You need to plan ahead to ensure you have enough staff and product during busy times and maintain a cash cushion for slow seasons.
Pay attention to previous seasons and plan your budget accordingly. For example, the hospitality and entertainment industry has busy seasons during the summer and over the holidays but may be slower in the fall and spring.
Other industries, such as retail, need to ramp up their staff for back-to-school and the holiday season but see a slowdown for most of the winter. Restaurants can have busy and slow periods during each day and have to adjust staff accordingly.
See how Deputy helped Premier Lighting with their seasonal staffing fluctuations.
Step 5: Use Deputy for easy staff tracking
Creating and maintaining cash budgets is easier if you use software that tracks scheduling, facilitates payroll, and forecasts labor needs. Deputy can do all that and integrate other programs so you can have a full picture of your business’s operations.
Don’t add another strenuous administrative task to your already lengthy to-do list — just use Deputy!
