Previously, I wrote articles about income and expenses, but not everything is black and white.
We can have unexpected expenses or an unexpected break in the revenue flow. And because of those situations, we can not control, we should at least minimize the risk.
You have now successfully finished almost all steps in cash flow planning:
Have collected all information
Started with income and divided them into categories
Divided all the expenses into Fixed costs and variable
now, we need to plan for the unexpected
Last Step: Evaluate your cash flow and the Unexpected Factor
If you have already started planning cash flow, you have included the initial money situation and added all considered incomes and expenses in your cash flow plan.
The result would be an excess or need for money.
If you know you can expect less income than expenses at some point, and the initial reserve of money is not enough to cover them, you should consider possible scenarios to best deal with the situation.
The cash flow is almost ready. Even good forecasters may be surprised by the Unexpected, so it is good if you could include in the cash flow an amount to be saved for those unexpected expenses.
It is not so much about the most accurate amount. But a principle that you need to take this Unexpected Factor into account.
If the situation does not occur, you turn the “saved” amount into a reserve. Then, you can use the created reserve for opportunities in the future.
Send me an email If you need help with your Cash Flow Forecast.
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