While having great products, customer service, delivery and a competitive edge are all essential components of business success, your finances and budgets are also critical. A budget is a map that helps you navigate the dynamic and sometimes stormy seas of running a business. Whether you’re selling handcrafts from your home or running a consulting business with several employees, follow these budgeting tips, keeping them in mind every day.
Set Realistic Budgeting Goals
Consider your budget and ongoing, dynamic process. You need to adjust your goals based on both internal and external factors. Some situations you can control, while others you can’t, so be realistic and flexible. Revisit the budget on a regular basis – choose a time frame that works best for you – whether weekly, monthly or another frequency. The most important thing is to adhere to it. Keep in mind that a budget is both a forecast of the future and an educational experience from the past. Revenue and expenses from previous periods can help you predict future cash flow, allowing you to set realistic profit goals. Naturally, you’ll need to allow for an increase in variable expenses, such as materials and hiring more employees, as your business grows and expands.
Communicate the budget to employees so they are aware of how the business works from a financial standpoint. There may be some confidential, proprietary information you might not want to or be able to share, but the key points people need to know will help them feel more engaged and involved in the business. Post what you can on a white board or other visible display.
Invest in Budgeting Tools
The right budgeting tools, including software, will help keep you on track, and understand where you may need to make adjustments. AN investment in financial software is a small one to make, and more than pay for itself. If you are uncertain about which one to choose, ask your accountant or another business owner who has used software successfully. Some of the more advanced features include inventory management, sales tax tracking and other useful extras. It’s usually easy to install and use the software, but don’t hesitate to ask for help if you need it, at least in the beginning. Always back up the information so you don’t have to recreate anything if there is a system crash.
As you might expect, you can be a diligent planner and suddenly the unexpected happens. You may have to replace equipment or there may be a seasonal or cyclical lull in your sales and revenue. A solid budget always has a cushion, and a plan for the unexpected. In a sense, this isn’t all that different from personal financial planning, and the need to have several months cushion should the unforeseen happen.
A Cost-Cutting Mindset
Another budgeting tip is to make trade-offs for big purchases that would fall outside your budget, cutting other variable expenses to keep your overall expenses within your chosen range. When making these big purchases, many recommend waiting until the start of a billing cycle to give yourself some breathing room.
During the rest of the month, continue to refer to the budget to see where you can cut back to maximize revenue. For example, think about buying store-brand office supplies such as pens, notepads and staplers, rather than purchasing expensive name brands. For even more savings, buy your shipping materials and other office supplies in bulk.
Budgeting, like any other good business practice, takes time and patience – and yes, practice. Be sure to track inventory and business expenses on a regular basis, get a good system going, use the right software and seek help when needed.