Why Budgeting Is Important?
For a business owners budgeting is important to forecast (and then match) current and future revenue to expenses to determine whether they have enough fund to operate, generate income for themselves, to compete, to ensure a solid emergency fund and expand the business. Without planning your budget, a business might spend more money rather than taking in.
Business owners have different ways of budgeting. However, there are some parameters found in nearly every budget that you can easily employ. For example, many business owners must make rent or mortgage payments. They also have payroll expenses, utility bills, interest, tax payments and cost of goods sold expenses (raw materials). These items should be considered when taking over or setting up business.
You can make assumption of your future business. If the business is a startup, you’ll have to make assumptions based on your hours of operation, geographic area and by researching other local businesses. By visiting other local businesses and by asking questions like their weekly income and etc., small business can sense what to expect then.
After you’ve researched these information, you should then match the expenses with business revenue . The goal is to figure out what an average weekly expense for overhead, utilities, labor, raw materials, etc. would look like. Based on this information, business owners may then be able to estimate or forecast whether they’ll have enough extra money to expand their business, or to tuck away some money into savings. On the flip side, owners may realize that in order to have three employees instead of two, the business will have to generate more in revenue each week.
Here are 6 tips that will help you plan your small business budgets.
1. Make a Spreadsheet
Put on to your spreadsheet the estimated total dollar amount and percentage of your revenue that needs to be allocated toward rent and other costs.Contact first the suppliers that you have to work with before you move forward because its ready a good idea for starters. Do the same thing for taxes, insurance(s), rent, etc.
2. Check Industry Standards
Not all businesses are alike, but there are similarities. Therefore, do some homework and peruse the local library for information about the industry, speak with local business owners, and check the IRS website to get an idea of what percentage of the revenue coming in will likely be allocated toward cost groupings.
Small businesses can be extremely volatile as they can be more susceptible to industry downturns than larger, more diversified competitors, so you only need to look for an average here, not specifics.
3. Look To Cut Costs
If times are tight and money must be found somewhere in order to pay a crucial bill, advertise, or otherwise capitalize on an opportunity, consider cost cutting. Specifically, take a look at items that can be controlled to a large degree. Another tip is to wait to make purchases until the start of a new billing cycle, or to take full advantage of payment terms offered by suppliers and any creditors. Some thoughtful maneuvering here could provide the business owner with much needed breathing and expansion room.
4. Factor In Some Slack
Remember that although you may estimate that the business will generate a certain rate of revenue growth going forward or that certain expenses will be fixed or can be controlled, these are estimates and not set in stone. Because of this, it’s wise to factor in some slack and make sure that you have more than enough money socked away or coming in before expanding the business or taking on new employees.
5. Shop Around for Services/Suppliers
Don’t be afraid to shop around for new suppliers or to save money on other services being performed for your business. This can and should be done at various stages, including when purchasing or starting up a business, when setting annual or monthly budgets, and during periodic business reviews.
6. Review the Business Periodically
While many firms draft a budget yearly, small business owners should do so more often. In fact, many small business owners find themselves planning just a month or two ahead because business can be quite volatile and unexpected expenses can throw off revenue assumptions.