Getting a bill for an unexpected expense can put a significant dent in your business’s cash flow. Here are some tips your business can use to deal with a surprise bill.
Stick to a reconciliation schedule
The best advice is to be prepared for the unexpected. Do this by knowing how much cash you have in your bank account at any given time. This is done by sticking to a consistent bank reconciliation schedule.
Conventional wisdom suggests reconciling your bank account with bills paid and revenue received once a month. But if your business doesn’t have that many transactions, you could reconcile once every two or three months. No matter what time frame works for you, be consistent with your review!
Create a 12-month rolling forecast
This exercise projects cash out 12 months. Then each new month you drop the prior month and add another month one year out. This type of 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. Consider setting money aside each month into an emergency fund to be used only in case of a significant expense. A longer-term goal could be to save enough money to cover three to six months of operating expenses.
Partner with a business advisor
Even small businesses sometimes need help keeping their cash flow in line and avoiding unexpected expenses. Please call if you have any questions about organizing your business’s cash flow and preparing for surprise expenses.