Successful Steps To Creating And Managing A Small Business Budget
Managing finances while running a business is a delicate balance; you need to invest your capital in things, people, and ideas that will continue to make money for you. At the same time, you need to cut funding in areas that are non-productive and fruitless.
Most of us are not starting our businesses with a degree in finance and financial planning--how can we navigate the important job of staying in the black while continuing to grow and expand?
Revenue vs. Expenses
Learning to estimate and then match income to expenses is one of the most critical skills you can learn if you are tackling your own books. Without a budget or plan for spending in place, you will be likely to leak in places that will cause additional debt. Common sense tells us that our profits must exceed our expenses but making that happen is an ongoing process. You must be aware of and accountable for every penny that flows through your business.
Starting to budget
Every individual will have a different style of setting up a budget, different needs, and various goals that need to be accomplished, but some of the basic parameters are the same when running a business. Most business owners will be responsible for rent or mortgage payments, utilities, cost of goods and inventory, and employee payroll.
Factoring in these large expenses and learning to anticipate additional operating costs will help you determine how much you must make each month to stay afloat. Here are some tips for setting up and managing your small business budget in hopes of creating a LARGE business budget:
Do your homework. Not every business is identical, but there are similarities and standards by which your business should be run for predictability and steady growth. Talk to other business owners, surf the net for growth and revenue statistics, and visit your local library for stats on what people in your industry typically make in a year. You can use this framework to plan your growth strategy and set goals for income regularly.
Ugh… make a spreadsheet. Making that all-important spreadsheet doesn’t have to be drudgery. It will be the lifeblood of your financial growth, however, so take it seriously. You’ll need to estimate what percentage of your revenue should be allocated to purchasing inventory, paying inventory, and managing operating costs. You will then need to calculate what is needed to grow steadily and stay in the black. It might be a wise idea to split up a budget into subsections like taxes, operating costs, employee payroll, and other categories so you can be more efficient with your cash flow. Not to worry if you don’t feel prepared to handle this on your own--you have the option of contracting this type of work out, purchasing software to help you manage your expenses, or even taking a course so you can get a little more hands-on with your budgeting. Learning as you go will be essential as you prepare for future growth.
Plan for unexpected occurrences.There might be unexpected costs and expenses that pop up, and if you have done your due diligence, you should have funds to cover these unforeseen circumstances. A burst water pipe, the addition of new employees for a pending expansion, and legal fees are just some of the issues that you could encounter while running a business. Plan ahead for unexpected expenses from time to time, and have a little money set aside for things that need your immediate attention so that they don’t threaten the livelihood of your business.
Constantly evaluate. Taking a look at your business and being able to determine if there are areas of deficiency is a critical skill for continued growth. Ask yourself the following questions when deciding where to place budget money: What is going well? Where can I put more money into expansion? Are we growing at a rate that I am happy with? Are there areas of deficiency or ineffectiveness that we can cut to allocate funds elsewhere? Being able to answer these questions will help you to remain efficient and flexible as your business changes with the times.
Shop around for profitable business relationships. It might be helpful to find a vendor that you work well with, but what if they will not give you the best deal for your budget needs? If you are making the decision to continue a vendor relationship based solely on money, you’ll have to shop around and find what works for you and your budget plan. Of course, if it is more important for you to continue a business relationship with a vendor that charges more for goods and services, then adjust your budget to absorb this expense accordingly.
Be watchful of all transactions. You have much on your plate, no doubt about that. It can be tempting to assume that bills are getting paid, orders are going out, and product is getting ordered. However, if you don’t have a system of accountability set up for you and for your employees, things can quickly spiral out of control. Managing a budget means being aware of what is coming in vs. what is going out and making sure that you can account for all of your financial dealings. Don’t turn a blind eye to your books because you are not familiar or not comfortable with money management; train yourself instead to monitor and deal with your balance, for it could mean the difference between success and failure.
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