For all your online business building info! , 2020-10-31 17:37:51
8 Ways to Make a Small Business Budget Work
Many people put in the work (time) to create a business budget, but after a while they forget or loose interest in it and they stop following their own written down guidelines for the business spending and saving habits. If you put in the time to create it, use it! This is the best advice someone can give you about the use of business budgets.
You have to remember that you’ve created the budget for a reason; for instance to have more money in case of emergency’s or to have enough money to pay for some type of equipment that your business needs to expand. For whatever the reason, the main goal is to follow the budget and to save money! Below you will find some common problems with many budgets people have created and of course some solutions that will help you stay within the budget you’ve created.
1. Learning Curve
You need to accept that living with a budget is like an education and that is had a learning curve. For instance in the beginning you may not know exactly how much money to save, which expenses you can trim or how much cash reserve your business needs. It will take some time before you can skillfully adjust a budget. In the beginning you need to accept that you have to adjust the budget as you go.
2. Missing Budget Estimates
You need to remember that budget projections are a best guess only and nothing more. The result is that you are going to miss your estimates. Of course you try to avoid it, but it doesn’t mean that you’re a bad businessperson or are unintelligent. It is how you act if you miss a budget estimate. If you miss a budget estimate for two months in a row, you should try to find ways to correct it and try to reallocate some other area of your overall budget to account for the budget adjustment that you had to make.
3. Be Flexible
As with setting up the small-business budget, sticking by one is often just a matter of being flexible. For instance if you didn’t save enough money (less than you projected), find some other expenses that you can trim back. The same goes for your revenue, if it is less than projected (in most cases there’s a good change that this might be the case), find some other expenses that you can trim back. In other words compensate in one area for another area to meet the overall budget amount you have set. This is not only if things go wrong. If you have more revenue than projected, maybe it’s time to invest in better equipment or an additional employee.
4. Watching Cash Flow
If you are trying to stick to a budget, you have to make sure that you watch the inflow more than compensates for your outflow. You need to monitor the business income stream closely to make certain that you’ll have enough funds to pay the bills. Cash flow problems are what are killing most small businesses. You must keep on top of things and make sure that your revenues is matching or even better exceeding your expenses.
5. Low-ball Revenue
Most entrepreneurs are optimists. If you’re an optimist then it might be a good idea to overstate your expenses and low-ball your expected revenue. This is most cases a solid strategy when making sure your cash flow is going to hold up. Try to look into budget savers (for example less expensive office furniture) and other ways to lessen the burden on the business income. Remember, if you don’t spend it you don’t have to earn it back!
6. Cash Cushion, Setting Money Aside
We already mention that budget projections are a best guess only and nothing more. This uncertainty – in terms of income as well as expenses – is one of the biggest threats to the survival (and of course success) of a small business. Of course you should try trim expenses where you can, but it’s also prudent to set money aside whenever possible. See it as an emergency fund for your business, for instance for that unexpectedly high bill that you didn’t for see.
The same goes for people who want to start a small business sometime in the future, they should start setting money aside today. This financial cushion could bail you out in ways you can hardly imagine.
7. Budget Checking
You should at least check your budget once a month. This is a point we cannot stress enough. We know that many small business owners don’t like accounting stuff, but this is also a part of doing business. Go over your budget every month (and we mean every month, don’t skip one month!) Examine the business cash flow to make certain that the business funds are sufficient to meet the liabilities. Make sure you have the right tools in place to keep track on your budget. For example one way small companies can help keep an eye on their budget, is to use third-party logistics for inventory management.
8. Budget Restraint, not Constraint!
Sticking to a solid budget is one of the most effective financial teachers there is. But of course you shouldn’t constraint the business. Sometimes there are opportunities that truly warrant busting out of a budget. So don’t be afraid to go beyond your budget to spend money that may turn out a valuable investment for the business. Using a budget and sticking to it is great, but don’t let it dictate your business!
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