Budgeting is essential for every business. One cannot let the financials run amok as that surely leads to ruin. Having a thoroughly drawn out business budget is crucial to ensuring financial success and growth of the company rather than facing loss. Having a budget allows business owners to calculate how much they need to be earning to successfully run their business, expand it, as well as creating enough income for themselves. It provides a financial framework to help make decisions and run the business smoothly.
This is especially important for small business owners as they generally cannot afford hiring a team of accountants dedicated to run the financials of the company and keep everything in check. Planning the budget can be quite a nerve racking task as it needs to factor in several aspects of the business and also because such meticulous financial planning is not everyone’s forte.
However, like with everything else in the business world, there are a few basic guidelines that can be followed to create a good working business budget that can be adjusted to meet the needs of different industries.
- Do Your Research:
As simple as it sounds, researching the marketplace as well as the industry in which the new business is set in helps considerably in the long run. Even though not all businesses have the same needs, there is always an overarching trend for businesses in the same industry sector. A good start is to look at the publicly available financials of companies in the same sector and try to assess how much is spent on average for different business related activities. By looking at a range of companies, especially those that the new business aspires to be and those that are its competitors, a small business owner can come up with a good rough estimate of how to allocate fund when designing the budget. The research should include not only industry estimates but costs of overhead, utilities, rent, taxes and any other miscellaneous expenses.
- Draw Up A Plan With Concrete Figures:
Before the small business is set up in actuality, it is favourable to draw up a plan with estimated figures on how much revenue will be generated and how much will need to be spent to make it. The estimates should be based on the research and should be a bit conservative as that allows for buffering from any unforeseeable costs later on. Once suppliers have been aligned for a particular small business, it is beneficial to have them send their price quotes so that the small business owner has a clearer idea of how the financials will proceed. Having the plan drawn up in a proper document provides a good source of reference for the future as a baseline for comparing actual earnings to expected earnings.
- Cut Costs:
Any small business owner should always be looking to cut costs wherever he or she can; whether it in overhead, fixed or variable costs. Any aspect of the business that is visibly harming the productivity should be enhanced or entirely cut from the process. This should not only be done when starting the business or when there is a strain on the finances, but should be an on-going process. However, one thing to watch out here is that any cost cutting does not negatively affect the quality of the product or service provided. Furthermore, if employees need to be laid off, it needs to be done in a manner that is not demotivating the employees who stay. Employee satisfaction is a key in the productivity of any company.
- Set Periodic Financial Review Deadlines:
Running a business is quite an exhausting endeavour and a small business owner might get lost in the day to day activities of his or her business, with time only for a cursory glance at the finances. While any good small business owner would make sure to check up on the finances to ensure a profit is being made, a smart small business owner would set up periodic financial review deadlines. These will ensure that the small business owner sets aside enough time to go through the financials in detail to analyse which sectors can be improved, where costs can be cut, how on track the financials are with the financial goals of that sector etc. A monthly review helps to maintain financial stability and makes it easier to sort through the finances during the annual financial review.
Not many business owners will dispute the importance of a good business budget. But it is the implementation and the determination to do so that makes the difference. Especially in the case of small business owners who do not have the resources to hire the manpower to run the financials independently, it is imperative that a business budget be constructed thoroughly and be followed through. It allows business owners to analyse the finances of the past to make forecasts for the future – this directly affects the inner workings of the company. Furthermore, it ensures that there is enough money for the smooth functioning of the company and enough money to invest in it for growth.