Receiving a bill with unexpected expenses can significantly impact the cash flow of your business. Here are some tips you can use to handle these unforeseen bumps in the road.

Be a prepared business owner

Stick to a reconciliation schedule. Know how much cash you have in your bank account at any given time. Sticking to a consistent bank reconciliation schedule can help. Conventional wisdom suggests reconciling your bank account with bills paid and revenue received once a month, but you now have the ability to reconcile your cash daily. Perpetual reconciliation is easier to do if your business has fewer transactions. It may seem excessive, but with the right team in place, you can be ready for any unexpected challenge.

Create a 12-month rolling forecast. This exercise projects cash out over a twelve-month period. Each new month, you drop the prior month and add another month from the previous year. This type of forecast will reflect the ebbs and flows of cash throughout the year and identify times that you’ll need more money, so when a surprise bill shows up, you know exactly how it will impact your ability to pay it. If you experience lean months, consider establishing a line of credit with your bank to be prepared for any unexpected expenses.

Build an emergency fund. Getting a surprise business expense isn’t a matter of if it will happen but when. Consider setting aside money each month into an emergency fund for use only in the event of a significant expense. A longer-term goal could be to save enough money to cover three to six months of operating expenses.

Avoid surprise business expenses

Partner with a business advisor. Even small businesses sometimes require assistance in managing their cash flow and avoiding unexpected expenses. Please contact our RRBB advisors if you have any questions about organizing your business’s cash flow and preparing for surprises.