If you’re like most small business owners, budgeting is probably not your favorite part of the job. However, it’s an important one.
Every business requires money to run and continue to grow. A proper budget makes sure there is always enough money to generate success as much as possible.
Just as any business needs a solid plan at the outset, it also needs a budget to keep the magic going. When you know how much money you need for necessary things, you can start planning for enhancements to the company such as newer equipment, more employees, better training, or more extensive marketing.
Every business is different, and this often creates different budgeting processes, sometimes wildly different from one another. Still, there are common points that everyone who runs a business has to observe, such as payroll, the cost of raw materials, utility bills, taxes, and other necessary expenses.
Here are five simple tips that can help you when it comes down to planning and budgeting for your small business – no matter what kind of business you run.
Tip #1: Do Your Research – Save for Hidden Costs
Virtually all businesses specialize in something; this is especially true of small businesses. They often don’t have as many resources, making clear focus a necessary requirement. You should know your specialty inside and out.
You also need to know about any potential competition, insurance, legal standards, tax codes, employee turnover, and regulatory costs; all of these (and more) fall into the hidden costs category.
According to the Small Business Administration (SBA), about half of businesses will not survive their first 5 years, and this is due to a multitude of reasons, but one very prominent one is due to a lack of sufficient funds. To be prepared for any hidden costs which may hinder your business, set aside at least 20% of your budget or revenue at the outset to cover the costs of things you may not have thought about.
Unless you have done your homework, are properly prepared and have allocated the money ahead of time in your budget, the hidden costs of running a business can sneak up on you and throw your entire plan off balance, even worse, risk closing your business’s doors.
Tip #2: Remember the Rainy Days
A small business is especially vulnerable when the economy takes a turn for the worse. Your budget will not only help you survive, but it will also help you prosper when an unexpected financial downturn occurs.
- First: Remember that no budget should ever be completely inflexible since it’s built off of estimates. If you have to shift a few things around, that’s perfectly okay.
- Second: There should always be a portion of your budget set aside for setting aside. A thick financial cushion is great protection from a sudden economic drop.
Even if everything is going fine in the larger economy, having some savings is a good thing when you decide you want to open a new location or add some employees. You can be rest assured that you’ll have enough money, because you’ll already have more than you need.
Tip #3: Pay Back Your Debts Faster
There are very few business owners who start without any debt.
Taking out a loan is often a necessity for a small business. So, make it just as much a necessity to begin repaying it as quickly as possible.
Pay more than the minimum when you can to avoid excessive interest. The quicker the debt is paid, the quicker you can free up your budget for something else.
Tip #4: Be Selective
Always take time to look for the best possible deal – shop around. For example, think of a shopping trip you recently went on, did you purchase things as you saw them or did you look at all your options, then at the end decide what you wanted to purchase? The latter is one personal trick I use to keep my wallet fuller; if I don’t remember something I saw before I leave, obviously it’s something that I don’t really have interest in.
Use this same approach when it comes to your small business – are you really taking a look at all your choices and deciding on the best option? Granted, the best option may not be the cheapest, but it will help you more in the grand scheme of things.
You should also never be afraid to cut costs in places it would not harm the operations of your business.
That doesn’t have to mean you drop employees or contractors. Instead, always look for opportunities to refinance or get breaks on any expenditures like debts or raw materials.
Tip #5: Budget Your Own Paycheck
It’s tempting to spend all the money you earn on things that will improve the business or just enhance your own personal life, but there should always be some portion set aside for things like the aforementioned rainy day fund.
You may be the only person working your business, but that doesn’t make you exempt from this tip. Budget yourself a fair wage and stick to it.
Any extra money should go into your rainy day fund because your current big profits may not last forever.
You and Your Budget
Obviously, a budget is more complicated than the five simple tips mentioned above. Know all the details of the financial side of your business as well as you know the practical side. That knowledge will go a long way toward ensuring your business will not only succeed, but grow.
Shariq Toor is Content Strategist and Outreach Expert working with the budgeting and forecasting experts at True Sky. He loves discovering the latest trends in Technology, Social Media, and Health. In his off time, he practices landscape photography and keep up with his favorite sports. Twitter: @Shariqtoor