Running a business is a huge challenge in many different ways, especially for those looking to start up their very first enterprise. But arguably the most pressing challenge you’ll face is effective budgeting. After all, if you aren’t turning a profit or managing cashflow effectively, your business isn’t going to last very long.
Budgeting is absolutely vital for any business – new, old, big or small – because it helps you make sense of what’s coming in and what’s going out of your business, allowing you to keep a healthy ratio between the two.
If you’re running a small business, chances are you’ve faced your own series of budgeting headaches in the past. To help you along, here are some of our top dos and don’ts for small business budgeting.
DO: Understand your risks
Every business venture comes with risks, and each of these risks could financially impact your company. In order to accurately plan for your financial future, you’ll need to consider both long- and short-term risks.For example, how could changes in minimum wage impact your workforce? Do you rely heavily on seasonal workers? Are you working in an industry that’s subject to dramatic change? And (particularly relevant right now) how would changes to overheads such as utility bills impact your profitability?
Map out potential threats to productivity so you can create a clearer picture around what you really need to carry on successfully. Once you know how much cash you need to secure your business, you can set aside the rest for growth and expansion.
DON’T: Cut corners
The simplest solutions are often the most tempting. Need to spend less? Simply cut your own wages, or stop covering travel costs! However, these quick-fix solutions can often cause more harm than good. Your small business budget should come with enough breathing room for you to be able to pay both you and your workers a fair amount. At the end of the day, you are still an employee of your business, even if you are the boss, and you deserve to be able to make a living from the work you do.
Instead of cutting the first corners you come across, put some time aside to work out exactly how much you’re spending within your organisation, and where it’s going. That way, you can make informed decisions with the best long-term results.
If you work on a project-to-project basis, you know that no two projects are the same. This means it can be hard to predict just how much something will cost, and it’s always best to be too prepared rather than underprepared.
So much of business is both planning and reacting to the unexpected. Failing to anticipate an expense could have disastrous consequences, but overestimating how much something will cost will help to shield you from damage. Operate on the basis that everything will cost the maximum amount – or, to put it a different way, always have plans in place for the worst case scenario.
DON’T: Ignore sales cycles
Many businesses experience off seasons, and you’ll need to account for your expenses during this time. If you start an ice-cream business in June, don’t base your entire budget around how much money you’re making in July and August, because chances are this won’t last throughout the rest of the year. Use your downtime wisely to ramp up your efforts and plan ahead, while keeping your budget modest to avoid overspending. It’s always bests to keep costs down ever more in the off seasons, as this means you’ll have extra funds to play with when you’re at your busiest.
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