Article by Sammi Caramela | Found on Business News Daily
Running a small business often means having small budget, too. With startup costs, loans and other expenses, it can be difficult to get your feet planted.
According to Annie Scranton, owner of Pace Public Relations, businesses of all sizes experience financial fluctuation, so it’s important to create and stick to a stable budget plan.
“If you don’t budget and save accordingly, you’ll be in a bad way [if or when] your company takes a downturn or even has an off month,” she said. “You have to account for slow payments, and budgeting can help alleviate the financial burden you may feel while waiting for a check to arrive.”
Before embarking on your journey in the business world, create a sustainable yet realistic budget for your company. Experts offered their advice for small business owners looking to keep their finances in order.
1. Define and understand your risks
Every business venture has a certain degree of risk involved, and each risk could financially impact your company. Paul Cho, managing director of Headway Capital, said that small business owners need to consider their long- and short-term risks to accurately plan for their financial future.
“How will changes in minimum wage or health care requirements impact your workforce?” Cho said. “Do you operate in a geography at high risk of a natural disaster? Do you rely heavily on seasonal workers? Understanding the potential risks facing you on a short- and long-term basis is important for all small businesses. Once you’ve mapped out the threats to productivity, a clearer picture can be built around emergency planning, insurance needs, etc.”
Scranton suggests listing your guaranteed income and expenses per month to understand your risks.
“This is a great baseline to figure out how liquid your company really is,” she said. “If you’re making money, then you’re able to at least set aside a portion for savings, or to go towards enhancing the company through new hires, expansion, etc.”
2. Overestimate expenses
If your business operates on a project-to-project basis, you know that every client is different and no two projects will turn out exactly the same. Often, you can’t predict when something will go over budget.
“Every project seems to have [an extra] cost that was never anticipated,” said James Ontra, CEO of presentation management company Shufflrr.
For this reason, Ontra advised budgeting slightly above your anticipated line-item costs, no matter what, so that if you do go over, you’ll be prepared.
3. Pay attention to your sales cycle
Many businesses go through busy and slow periods over the course of the year. If your company has an “off season,” you’ll need to account for your expenses during that time. Cho also suggested using your slower periods to plan for your next sales boom.
“There is much to be learned from your sales cycles,” he said. “Use your downtime to ramp up your marketing efforts while preventing profit generation from screeching to a halt. To keep your company thriving and the revenue coming in, you will have to identify how to market to your customers in new and creative ways.”
Scranton said if you know your business has slower times, you should have extra money in the bank during those months.
“It’s best to try to keep costs down even more in the off seasons and to have extra money saved in case the money coming in isn’t as much as you had hoped,” she said.
4. Plan for large purchases carefully and early
Some business expenses occur when you least expect them: a piece of equipment breaks and needs to be replaced or your delivery van needs a costly repair, for instance. However, planned expenses like store renovations or a new software system should be carefully timed and budgeted to avoid a financial burden on your business.
“Substantial business changes need to be timed carefully, balancing the risk with the reward and done with a full understanding of the financial landscape you’re operating within,” Cho told Business News Daily. “An up-to-date budget and data-driven financial projections are important components that help guide when to make large investments in your business.”
5. Save a set percentage of each check you cash
It might be tempting to splurge after a successful month or two, but always remember to save a portion of every check you cash.
“Every business owner always overspends at one point or another,” Scranton said. “You never want to be in a situation where you’re spending more money than you have coming in.”
To avoid this, she advised saving at least 30 percent per check to account for taxes and to accrue additional savings.
6. Remember that time is money, too
One of the biggest mistakes small businesses make is forgetting to incorporate their time into a budget plan. Ontra reminded business owners that time is money, especially when working with people who are paid for their time.
“Timing underestimation directly increases costs,” Ontra said. “Not only do you start to lose time to the delivery schedule, your team also loses momentum as their collective thought shifts focus to another project.”
Ontra recommended treating your time like your money, and set external deadlines later than when you think the project will actually be done.
“If you believe the project will finish on Friday, promise delivery on Monday,” he said. “So, if you finish on Friday, deliver the work early and become a star. If for some reason time runs over, deliver on Monday, and you are still a success.”
7. Constantly revisit your budget
Your budget will never be static or consistent — it will change and evolve with your business, and you’ll need to adjust it based on your growth and profit patterns. Cho suggested revising your monthly and annual budgets regularly to get a clearer, updated picture of your business finances.
“Regularly revisiting your budget will help you better control financial decisions, because you will know exactly what you can afford to spend versus how much you are projecting to make,” Cho said.
In addition, consider past market trends to help prepare yourself for the year ahead. From there, you can factor in emergency funds and unexpected costs, Cho added.
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