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 crucial that your small business budgeting is ahead of the curve – you must carefully craft your budgets to ensure your cash inflows match or exceed your outflows. Without careful cash management, you may find your small business struggling to reach your company’s milestones for growth. Implementing the right budgeting techniques for business offers many benefits for entrepreneurs. 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. Learn how to make a budget for a small business that helps secure your cash flow month after month.
Utilize Historical Data
The best way to effectively project your future financial situation is by reviewing and analyzing your company’s historical data. With this information, you can identify patterns based on past performance, whether it’s noticing that revenue dries up every year around the same time, or realizing that your annual budget for office supplies consistently falls short of what staff members actually end up spending. Insights like these help you adjust your current budget forecasts to more closely align with empirical historical data.
Get Others Involved
You know your business better than anyone, but that doesn’t mean you know everything. Employees are a valuable source of budget help for small business because they know things that haven’t been reported to you, the boss. Even though you will have a final say over every budgeting decision, it helps to build the budget as part of a team effort. Bring in members of each department, team or crew – whatever it takes to get a comprehensive view of the company’s finances. Relying on multiple perspectives leads to stronger, more realistic budgets. It also takes the burden of small business budgeting – which can be time and labor-intensive – off your shoulders exclusively so that you can continue to focus on other aspects of the business while building the budget.
Know Where You Got Your Mega-Customers
According to Forbes, chances are 80% 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. Budgeting techniques for small business should address ways to save money and ways to grow revenue.
Survey the Risk Landscape
Forces outside your control could drastically change your budget forecasts. For example, increases in the minimum wage may increase your labor costs, or the low unemployment rate could make it hard to find the workers you need to complete more work. Since you can’t control these risks, the only option is to plan for them in advance. Look backward to understand what risks have thrown past budgets off, then look forward to anticipate issues that may affect your costs and revenue. Finally, remember that no forecast is perfect, and the unexpected takes many forms. Some of the best advice for how to make a budget for a small business is to include some wiggle room for when things don’t go as planned.
Estimate Expenses on the High Side
Speaking of wiggle room, it’s good practice to plan your expenses being higher than you expect. After all, products and services get more expensive each year, things break or get lost without warning, and unplanned costs are almost inevitable. Instead of letting these expenses strain your budget, plan to spend a little above your expected line-item costs. If you’re wrong, you end up with a surplus, and if you’re right, you avoid a potential disruption – it’s a win-win.
Incorporate Budgeting Software
Increasingly, businesses 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 access budget help for small business 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 either.
Consider a Small Business Loan
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 small business loans into your business plan can create a bit more breathing room in your budget and ensure you have the necessary cash to bridge any financial gaps during tough times. Budgeting techniques for business often incorporate financing as a defense against disruptions, or as a way to pursue new markets and revenue streams.
Revisit and Revise
Small business budgeting should be a yearly (or even quarterly) process. Don’t assume the budget you relied on last year will continue to work this year. Instead, go through last year’s numbers, compare those to the outcomes, then decide where changes need to be made. You may need to spend more (or less), add some line items and cut others out – the point is that your budget needs to be revisited and revised regularly. It can seem like an unnecessary distraction, but the time and effort are well spent if it means your new budget reflects the financial realities for your business today.