Just because you’ve opened a business, doesn’t mean you necessarily know everything you need to about how to run it, especially the financial aspects. No one teaches this! Unless you have a finance degree, I bet no one ever taught you how to read a cash flow statement or create (and manage) a budget. Many companies tend to fail within the first five years, mostly due to poor financial planning and budgeting. Being able to understand estimates and match expenses to revenue is important because it helps business owners determine if they have enough funds to operate their business. Without a budget and plan, a company runs the risk of spending more than it’s earning.
Here are some steps to build a better business budget.
- Check Industry Benchmarks
Not all industries are alike, but there are some comparisons. Google benchmarks for your industry to see what’s out there. It’s important to do some research about your industry, learn what other businesses are doing, and checking the IRS website to get an idea of what percentage of revenue coming in would most likely be allocated toward cost groupings. Small businesses can be volatile as they are more susceptible to a slow economic turn.
- Make a Spreadsheet
I love spreadsheets! Create a spreadsheet to estimate what total dollar amount and percentage of your revenue you’ll have to put toward raw material and other costs. Do the same with rent, taxes, insurance, etc. On your first draft, put in everything you can think of, you can always cut back. If you need a great template to start, I have one – email me at email@example.com to get my template.
- Factor in Slack
Although you may factor a specific revenue or rate of income, remember to estimate certain expenses that can’t be controlled or aren’t set in stone – like emergencies with equipment or liabilities.
- Look at where you can Cut Costs
If money is tight, finances must be found somewhere to pay bills. If needed, consider cutting some costs. Another way to save money is to wait to make purchases until the start of a new billing cycle. With some careful maneuvering, you can create some breathing room.
- Review the Business Periodically
While many businesses draft a budget yearly, owners should do it more often. Things change rapidly in the life of a small business owner. You need to be reviewing your budget at least monthly. First to compare your actual results to the plan, and second to make any necessary adjustments.
- Shop Around for Services/Suppliers
Don’t be afraid to shop around for new suppliers, negotiate contracts on renewal, or to save money with other services being performed for your business. This can be done at many different stages of your business, including annually or during periodic reviews.
The Bottom Line
Budgeting is an easy, but essential process for business owners to forecast their future and current revenue expenses. The end goal is to make sure that there’s enough money to keep the business up and running – and ready to grow.
Need further help with preparing a budget for your business? I’m just an email away – firstname.lastname@example.org.