Knowing how to budget appropriately could be the single biggest factor in the success of your small business. Yet many small business owners don’t take the time to learn the budgeting basics. Below, you’ll find some simple and helpful tips for creating a budget that will allow you to increase both your cash flow, and ultimately, your chances at small business success.
GET A TEMPLATE
There are all kinds of downloadable templates out there you can utilize to start building your budget. Before you start crunching numbers, conduct a quick internet search to find budget-building software that works for you (assuming you don’t have a program in mind already).
OVERESTIMATE EXPENSES
Budgeting is all about having a plan. That being said, any seasoned business owner will tell you that unplanned expenses are bound to rear their heads. When building your budget, always make sure you overestimate your expenses. That way you’ll have the cash on hand to pay for unplanned expenses when they arise.
OFFSET UNPLANNED EXPENSES
Another way to deal with unplanned expenses is to offset them by making adjustments to your planned expenditures. In other words, before you spend x amount of money on something you didn’t budget for, you might consider cutting that same amount from your other planned expenditures. That way you won’t go over budget every time the unplanned throws a wrench in your plans.
DON’T OVERESTIMATE YOUR CASH FLOW
Coming up with a realistic cash flow projection is one of the keys to creating an effective budget. Make sure you aren’t succumbing to wishful thinking when doing your projections to avoid a rude fiscal awakening down the line.
ANALYZE POTENTIAL PURCHASES
Not sure if a new purchase is going to warrant the associated expenditure? Perform a cost-benefit analysis beforehand on any sizable purchases you are considering.
KNOW THE DIFFERENCE BETWEEN CASH FLOW & PROFIT
Even profitable companies can succumb to cash flow problems. That’s why it’s important to recognize the difference between cash flow and profit. Essentially cash flow deals with when the money for a transaction is actually received while profit is simply the amount of a sale. Made a sale but haven’t been paid yet due to the nature of your billing cycle? Then your cash might not be flowing as quickly as you might think.
TRACK ANY AND ALL BUSINESS EXPENDITURES
When building their budgets, entrepreneurs tend to be good at tracking larger business expenditures. Where they tend to get in trouble is by not tracking the smaller ones. Remember, those small expenditures can really add up over time so it’s imperative that you track them as well.
KNOW YOUR SALES CYCLES
Depending on your industry, your sales may fluctuate seasonally. That’s why it’s important that you have an understanding of your sales cycle so you can set aside enough cash reserves to survive the slow times until things pick back up and your cash flow can increase.
REVISE YOUR BUDGET
Chances are that your forecasting accuracy won’t be the greatest your first time out. Don’t get discouraged. As with any new endeavor, the more you work on your budget, the more accurate it will be. So, be prepared to make tweaks to your budget as necessary.
CONSULT A PROFESSIONAL
Stretched too thin by other tasks to tackle your budget? Don’t be afraid to ask for help … there are plenty of financial advisors out there who can help you assemble a realistic budget.
In today’s business world, none of us knows what the future holds. By budgeting effectively however, you’ll better prepare your business to meet whatever financial challenges await you down the road.
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