A business without a budget is like a bird without its wings. You can expect it to make some initial progress on the ground floor, but, at the end of the day, it’ll never take off. Small businesses, in particular, require some serious budgeting as they have very limited resources at their disposal, as opposed to the much larger corporations. As a result, they need to be extra careful about what they spend their money on. So, how do they achieve this without getting the short end of the stick? The answer: by following these five simple steps that will help them create a budget for their small business.
Determine your monthly income
Small businesses are highly volatile and as such require more frequent planning and budget tinkering to stay operational. Hence, in order to ensure that your business has a positive cash flow at all times, you should assess your income on either a monthly or even a quarterly basis. This way, you determine what your overall spending power is for that particular month allowing you to write off any unpleasant surprises in advance. Moreover, try using a simple spreadsheet format when creating your monthly income projections to keep the relevant data more accessible and all in one place. By doing so, you can monitor your business’s financial progress throughout the months more easily and find any potential holes in your budget that require fixing.
Account for variables
However, income projections aren’t necessarily set in stone, meaning that you’ll often have to adjust your estimated budget as you go along. This, of course, includes being flexible when new lucrative business opportunities present themselves to you. For example, there’s a liquidation sale going on right now with some quality office equipment you can get dirt cheap on auction, yet your planned budget doesn’t cover that particular expense. In that case, you need to adapt accordingly and get some fast business loans before you miss out on a deal of a lifetime. This way, you’ll actually be saving more money in the long run than if you simply bailed out on the deal. Therefore, you need to keep your eyes peeled for similar opportunities and not be afraid to strike while the iron is still hot.
Cut out needless expenses
Once you’ve taken all the variables into consideration, and determined your projected income, you need to take a closer look at your fixed expenses and weed out all the unnecessary expenditures your business might be having. This includes cutting back on excessive supply costs by changing your supplier; moving to a new office space that requires less rent; automating workflow with the use of technology to cut staffing costs, and so on. By cutting down on needless expenses, you acquire additional capital which can then be re-invested into the further development of your business. Also, it effectively lowers the risk of you closing shop prematurely due to financial bankruptcy.
Make room for growth
A lot of small businesses out there focus solely on survival, and as such forget to include growth into their budgeting plans. Therefore, setting aside some income each month, mainly for the sake of expansion, will ensure that there’s a sizable reserve for such an endeavor. Once the opportunity for expansion finally arrives, you can invest the accumulated funds accordingly without the fear of going bankrupt. Moreover, it’s never a bad idea to actually save some extra cash for those rainy days and for when things suddenly go downhill. For this reason, always leave enough room in your budgeting plans for a plan B as well.
Review and adjust your budget
Lastly, creating a business budget shouldn’t just be considered a one-off deal. Instead, you have to constantly keep track of it, monitor and adjust it to your current business needs, rinse and repeat. Likewise, by reviewing your budget, you get a much better understanding of where your finances are heading, as well as the general areas of your business that could use some improvement. Meaning, you can invest all of your business’s capital in the things that have proven to bring in results in the past and not waste valuable time and resources on unnecessary experimentation.
All in all, even though it might look somewhat tedious at first, creating a budget for your small business is an excellent way of saving money that would otherwise be wasted on business inefficiency. Be prepared, plan ahead, and go make some profit.