What's the best way to budget for fluctuating expenses?

When you have seasonal fluctuations a monthly budget and cash flow statement are a necessity. The budget will help you prepare the cash flow analysis which will tell you when you will have cash issues. You can then try to arrange a short-term source of financing or cut back on spending during the rough period. You may also opt to reduce your spending during times of excess cash in order to fund the periods of negative cash.

Budgeting and planning tends to reduce the surprises and allows you to have more options for problem resolution as opposed to a fire fighting strategy with limited options.

The best way to control expenses is to review your Accounts Payables.  Print a report of your payments by supplier in descending order of dollar amounts.  Then review each one and ask yourself how you can reduce payments to that supplier in the short term and long term.  For example:

1) A large expense is probably employees salaries.  Some questions:  Do I need all the staff all the time?  Are they always busy?  when they are not busy with customers, can I have then do other things such as clean, restock, take inventory, make Marketing calls, stuff envelopes with direct mail flyers and coupons.   Should I change my business hours?   do I need more staff because customers are walking out??  Maybe more staff can sell more!!

2) Space Rent is another large expense.  Will the landlord reduce the cost per square foot?   Will they reduce the space I have?   Maybe I need more space to add more products to sell more to increase sales.   Can I sublease part of the space to another non competing retailer?   Maybe add a coffee shop to increase Sales per Square foot.

All of this effort is time consuming and really requires a 'new look' and someone to ask 'why not' over and over and over.

if you have been running your business for sometime then you should use your historical numbers to forecast both sales and expenses, and you should have a reasonable idea about the seasonality of your business

make sure you create a spreadsheet to forecast your monthly cash flow, where I am assuming most of your sales are either cash or by credit card so the proceeds should be in your account within 24 hours or so. On the other hand you should have an idea of what your direct cost of sales is ( for example what you sell for $100 cost you $60, meaning your cost of sales is 60%). Accordingly factor this percentage on your spread sheet, which will give you an idea of what your monthly cost of sales is.

Also add all non direct expenses, things like rent, payroll, hydro, insurance, internet, interest...etc

now your monthly numbers should show you what is the net cash you have for each month, and accordingly you can make decisions

This information can help you arrange a line of credit with your bank to cover those months where you are short in cash. Also try to negotiate better payment terms with your suppliers, 15/30/45 days or so, which gives you room to manage your cash.

You need to budget your entire year for revenue and expenses.  Do the budget in the late part of your business year.  Using the previous months as a guide budget your revenue and expenses for the next year.  Include any estimated increases or decreases. Once you see the months in which you have excess cash create a plan to save some of the excess to assist you to get through the months where the cash flow is almost negative or is negative.  You could set up another bank account and transfer funds into it from the excess months and then  draw it out as needed in the negative months.  You could also approach your bank for either overdraft protection or a line of credit which you could use in the negative months.

Hi, take a look at your historical trends to see where your seasonal increases and decreases are. This will build a foundation for your budget and help you see how your cash flows fluctuate from season to season. From there, build a medium range budget (12-18 months). This will help you plan your cash flow during the seasonal highs and lows.

One of the first things you should do is to see where your finances are. What I mean is this..are you paying too much for the services for doing business ? how about your property taxes are you over paying that,are you using your employees tax  credits wisely ?. It is important to first find the drain on your finances ,then fix them. To get an idea of the areas you should research . 

You need to first look at your prior year on a month-by-month basis.  This will identify your outflows (cash) during your strong and weak months allowing you to hold-back what you'll need during the lean months.  With this in mind you can set up a monthly budget in your accounting software package.  If hold back the shortfalls that will occur during your strong months you should not have a future cash flow problem.   However, build in some fat of at least 5% extra for unforeseen increases.  Throughout the year take a little extra every month and build up a reserve for the future.  This will allow for any problems (building repairs, increase costs of purchasing inventory or slowdowns in the economy effecting your business) to name a few.  If you follow these steps you'll be 10 steps ahead of most small businesses. 

Tracking your income and expenses will allow you to create a cash flow report. You can use prior years as well as 2019 to get a good feel for next years budget.  Take all your staple expenses and then also allow for any unknown expenses that might come up and create a budget based off of those and your income to project 2020.  When you're making money, it is best practice to put aside the amount that you will need to get you through those months of slow times. 

Your history tells all. You study your monthly sales, cashflow (is the time it take to turn sales into cash and the length of time it takes you to spend your cash and pay your vendors) and finally the time it takes you to restock your store and the amount you spend. It is all about understanding the timing and amount of each one of these line items that is sales, cashflow and inventory investment.

Drew Cashmere

Start by tracking (recording) your expenses month to month for a year. This will show you the variability. If you just use the average of each expense line you will have good months and bad ones. I recommend you use the highest amount of each expense line as your benchmark. Now figure out the revenue pipeline you need to cover those “upper control limits.” At the end of the year you will have a surplus because you are managing to the worse case scenario.