Running a small business can often mean operating with slim profit margins and inconsistent revenue streams, potentially leaving you short of working capital when you need it most. Because of this, it’s vitally important that you carefully craft your budgets to ensure your cash inflows match your outflows. Without accurate budgeting techniques, you may find your small business struggling to reach your company’s milestones for growth.
Implementing smart budgeting techniques offers many benefits for small business owners. Putting in a little extra time and effort during your budgeting meetings to create a framework and strategy for allocating your resources helps you maintain profitability and create realistic and achievable goals for future growth. Consider these techniques to create a smart small business budget:
Utilize historical data
The best way to effectively project your future financial situation is by reviewing and analyzing your company’s historical data, the Houston Chronicle noted. With this crucial information, you can detect patterns based on actual past performance, whether it’s noticing revenue dries up every year around the same time, or realizing that each year your budget for office supplies is consistently below the amount staff members end up spending. This lets you adjust your current budget forecasts to more closely align with empirical historical data.
Know where you got your mega-customers
According to Entrepreneur, chances are half of your revenue most likely comes from the top 20 percent of your clients or customers. Unless you have a solid grasp on why these mega-customers chose your company and continue to do business with you, you’ll be unable to effectively leverage this information to attract similar customers. Worse, if you fail to retain one of these mega-customers, you could potentially lose out on a significant chunk of your revenue. Be sure to cater to the high rollers while also figuring out what you did to snag them in the first place. Even better, hooking another one of these whales can create a great opportunity to scale operations without necessarily needing to increase spending by too much, thereby boosting your profit margins.
Incorporate budgeting software
Increasingly, business of all sizes are embracing advanced budgeting software to assist in maintaining accurate spending and financial projections. With more granular data on the exact costs and expenses necessary to operate your small business, you can make more precise, data-driven decisions on what best suits your goals. Further, since most budgeting software is now cloud-based, you can easily tinker with line item expenses from any mobile device with an internet connection to find new ways to trim waste, optimize your supply chain and wisely distribute your resources where they’re needed most.
Don’t forget time is also money
The age-old adage that time is money might be so familiar to some people that they no longer take its meaning to heart. But you should keep this important phrase in mind, since too often small business owners fail to include time into a budget plan, Business News Daily reported. Underestimating how long it will take to complete a project or not scheduling a deadline out far enough into the future can significantly increase labor costs, eat away at your delivery estimates and negatively affect future orders. By treating your time as if it was money, you can more effectively set proper deadlines and ensure you’re not wasting time and money.
Consider a merchant cash advance
Sometimes, no matter how carefully you craft your company’s cash inflows and outflows, you can still find yourself short on cash or struggling to keep the doors open. Incorporating alternative funding into your business plan can create a bit more breathing room in your budget and ensure you have necessary cash to bridge any financial gaps during tough times.