As we know, starting any business is a sizeable financial commitment. However, just because the website goes live or the doors open up, doesn’t mean you’ll instantly become profitable. Instead, carefully planning and budgeting is a necessity if your business is to be successful.
In order to set up your business for long-term success, it’s imperative you budget accordingly and in a smart manner. Below are a few tips on how to create a budget that’ll put your business on the right track.
Keep your employees in the loop
As the owner of a small business, you may feel that the buck stops with you. However, remember, a businesses budget will affect everyone involved. Whether you are running a business with your partner or have several staff, keeping them up-to-date with budgeting is vital.
In order to get a complete understanding of the business and its financial needs, key staff should have input. This will help to shape a budget that’ll have all your bases covered and any unexpected issues are planned for.
Additionally, everyone involved should be aware of any changes to the budget and how it may affect their roles. This will keep everyone on the same page and reduce any confusion around what is financially viable.
Be sure to pay yourself too
Every business owner has faced this question; “how much do I pay myself?” In most cases, the obvious answer is, as little as possible so you can maximise every dollar the business generates.
However, you are an employee of the company as well. Thus you are entitled to a fair wage. In order to achieve this, don’t feel guilty about it, simply fit it into your budget.
Understand the risks you face
No matter the size of the business or how long you’ve been around, there will always be risks involved. As you are creating your budget, make sure you factor in the effect these risks could have.
No matter how far-fetched a risk may seem, having a backup fund in place should be one of your biggest priorities. What happens if there’s a natural disaster or changes to regulations, do you have funds in place to survive?
Once you have mapped out all threats to your business, you’ll be able to build a plan for dealing with these issues. Whether that is emergency planning, insurance or wage cover. Not having this in place could be disastrous for your business.
Overestimate your expenses
It’s always better to overestimate and have funds left over than underestimate and have to take funds from other areas of the business.
No matter the offering or industry your business is in, chances are no two projects or clients will be the same. So this means, the expenses associated will vary as well.
For small businesses, failing to anticipate and plan for extra costs can have a drastic impact on the business and its future. To counteract this, as you are creating your budget, overestimate expenses to protect yourself.
If you’re a construction company, slightly overestimate material costs or if you're a clothing brand, increase your budget on samples, just in case you go back and forth with the supplier more than you anticipated.
Factor in your sales cycle
As you are constructing your business’ budget, make sure you factor in your sale cycle. Fluctuations in sales is a natural part of a business and largely unavoidable.
For new business, this will be hard to factor in, but you can still project and plan for it. However, for more established companies, you’ll have a clear understanding of when you are in demand or not.
Having a good understanding of the fluctuations your business experience will help you fine-tune your finances in a way that’ll keep you viable and hopefully profitable.
Don’t forget to revisit
Your budget is a very dynamic part of your business, which should never stay static. As your business evolves, so should your budget. That’s why it’s important your budget is regularly analysed and reevaluated.
For small business owners, it may take time to get a full picture on every aspect that’ll affect the businesses finances. For that reason, it’s highly recommended it’s revised regularly.
In most cases, small business owners should revisit their budget every couple months and should do a full review annually.
Conducting these reviews doesn’t have to be a time-consuming and draining practice. Yes, they should be comprehensive and accurate but they shouldn’t be the reason for you turning grey. With account software, such as CashManager, business owners are able to get a complete picture of their budget and the state of the business’ finances.
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