Budgeting tips for small businesses
If you’re like most small business owners, you know your trade – you’re passionate about your business and you know your stuff. But, how are you at bookkeeping – more specifically, budgeting? It’s a completely different skill set and it can mean the difference between a business that struggles and a business that soars.
The good news is, good budgeting skills are easy to learn. You start by identifying your profit margins, and then allocate expenses appropriately. A good budget will help you track and manage your finances and help prepare your business for unexpected financial curveballs. But setting up a budget is not enough – to keep your business in the black you’ll need to stick to it and review it regularly.
Here are some tips for better small business budgeting:
Overestimating your cash flow might make you look good now but it will do nothing for your future. Inflated profit projections will influence your spending so be realistic to avoid having to dig yourself out of a financial black hole later. Consider the best and worst outcomes when making forecasting, and err to the conservative. And ensure you have sufficient working capital to cover your needs.
A financial curveball has the ability to derail everything you’ve worked for. It could be a project that has run well over budget, an unexpected increase in your overheads or a significant staffing issue. While you can’t prepare for every contingency, a rainy-day fund will mitigate the effects of a sudden increase and create a healthy buffer that can be used for emergencies without affecting your cash flow.
Always look out for the best deal. This is easy when you are setting up but annual reviews also provide a good opportunity to review your costs. Don’t be afraid to ask for a better deal from your existing suppliers – loyalty is something that should be rewarded.
Cut costs (expenses) where you can
Cash flow for small businesses can be tight so it’s a good idea to separate out your costs – must-haves and nice-to-haves. If money is tight – revisit your nice-to-haves and decide what you could sacrifice for now, it doesn’t have to be forever. And don’t overlook the little expenses – they all add up.
Focus on debt reduction
Relieve the burden of debt by putting a strategy in place to reduce it - make savings where you can, cut costs where you can and allocate a proportion of your profits get rid of debt.
Manage your debtors
Cashflow is the life-blood of your business, so it’s important to bill your customers promptly and to keep the terms as short as possible. Good management of your debtors will help you get paid faster and prevent bad debts and help you maintain a healthy cash flow.
Don’t spend all your profits
Whatever you do, don’t spend everything you make. Put some of your profits aside for unexpected expenses and to allow you to grow your business when the time is right.
A good budget provides visibility over your finances and helps keep you on track. There’s lots of information out there to help small businesses manage their dollars and cents, but the best thing you can do is just get started. Open Excel, download a template or pick up the phone - just get started. Then look for better ways. Read more on growing your business.