While you understand the importance of having a budget for your small business, creating one is often challenging. Here are some tips to help you with it.
While your business’ budget isn’t very glamorous, it’s a vital part of your business. Failure to budget effectively will tank your business so fast your head will spin. This is because when you’re bleeding cash you’re leaking out faster than you can plug your “ship.” Of course, you won’t even know this is happening if you don’t have a budget. Unfortunately, many business owners don’t know where to start, but fortunately for you, we’ve got you covered.
Utilize Accounting Software
Ground Report says you need to start by finding an affordable, if not free, bookkeeping software to us. This software will have the spreadsheets you need to use when creating things like your balance sheet. There are so many different useful features found in bookkeeping software that you’ll be able to accurately measure your:
- Cost of goods sold
- Material costs
- Utility costs
With so many items on this list, it’s easy to overlook an expense today or forget about an implicit cost, but with accounting software you’ll be able to easily stay organized.
Tally Fixed and Variable Expenses
Price and Cost says once you’ve found the accounting software package you’re comfortable using, you’ll want to spend some time thinking about where all your money goes. This doesn’t have to be all gloom and doom though since tracking your expenses will give you a strong idea of your profits too.
You’ll want to start by determining your fixed expenses – those that you’ll need to pay monthly, including:
- Staff wages
- Your building’s lease
- Utilities (unless they’re connected directly to your core business, which would then make them a variable cost)
Once you’ve determined your fixed expenses, it’s time to determine your variable expenses – those that fluctuate depending on how much money you earn. These include:
- Overtime wages
You may need to conduct some market research to determine what the likely cost of your stock will be for the coming year.
Reduce Cost by Using Cloud Technology
While you want to cut your expenses’ costs wherever possible, you should also adopt cloud based business phone systems for seamless and hassle-free communication. Overall this will balance out and you may even notice improvement in your budget overage. Look at things like your utilities – some of which you’ll find are expensive but not very useful. Make sure you only keep functional, multi-purpose systems that boost your business’ effectiveness and efficiency. This is exactly what the cloud will do for you. Finding other ways of doing this for your business will add to your budget’s monetary savings and benefit your office overall. One thing you’ll want to spend money on is a good working internet connection.
Adjust for Economic and Industry Trends
Incorp says there’s no way your business can avoid dealing with economical factors and niche occurrences. Being prepared for these changes to come your way will allow you to continue running your business without any major disturbances. You’ll simply need to adjust your pricing and operations based upon how these occurrences affect your business’s production. When a financial crisis hits the economy, you’ll be prepared to reduce your prices and lose a few customers. Once new development occurs within your industry you can also be ready to increase your spending so your business remains current with industry standards. Some of the measures you can take to prepare for these trends include:
- Consider general industry growth
- Consider wider economic growth
- Consult forecasts from reliable industry experts
Decide how to Spend Your Money
How you spend your money is a major indicator of how well you’ll maintain your budget. If you spend money frivolously on things that don’t help you grow your business, then you’re wasting money that you could spend in better ways. For instance, spending a lot of money on new office furniture won’t bring revenue back into your business so you should think of this as wasted money. However, if you choose to spend more money on a marketing campaign that’s beencreating more leads for your business, then you’re making a great investment. It will take some time and dedication to discover what type of spending works best for your business, but you want to make sure that whatever you choose to spend your money on will help you in the long-run. Here are some ways you can create a strategy for the money you spend:
- Choose a fixed rate energy plan as it’ll help you know what to expect to pay each month
- Decide whether it’s best for your company to buy or lease things like technology, vehicles, office buildings, etc.
- Look for old products before your buy new ones
- Consider whether you should buy things outright or finance them
Discuss Expenditures with Department Heads
Make sure all your employees are aware of the budget your company needs to maintain so they can focus on reducing spending and increasing performance. Many times, your budget gets overspent when employees don’t know about or understand it. Clear communication here helps people understand what needs to be done and plan accordingly. Some information you should pass on to your employees, especially your department managers, regarding spending include:
- Planning for one-off expenses
- Agreeing to what money needs to be spent to help your business grow
- Creating targets that incentivize your employees’ performance
Plan Regular Budget Reviews
Once you’ve created a budget, make sure you review it frequently so you can keep track of your progress. Simply creating a budget and sticking it in a drawer somewhere won’t help you you’re your spending in check. The only way to do this is by looking at your budget, even when you’re not undergoing any financial difficulties. By being proactive instead of reactive you can make any necessary adjustments when you need to do so. Some of the best ways to handle regular budget reviews include:
- Looking at it quarterly allows for flexibility
- Reacting to overperformance and underperformance
- Adjusting figures accordingly instead of ignoring situations
- Speaking to your accountant before making big decisions will help you maintain a strong business