Small business budgeting is one of the most important components of running a successful company. Whether you are just starting out or you’ve owned your business for years, creating a budget and routinely reevaluating it helps to ensure the longevity of your company.
Small business budgeting tip #1: Research industry standards
It helps to see how your company stacks up against others in the industry. You can find excellent information about average budgets by checking out the IRS website, speaking with other business owners or seeking information at the library.
However, it’s necessary to make sure you research small businesses, too. Owing to the fact they are more vulnerable than large corporations during industry downturns. A change in the economic landscape means their average budgets will be more in tune with your own.
Small business budgeting tip #2: Understand the basic components
The most important part of creating budgets for small business is ensuring the budgets contain the proper components. Make sure your budget includes your costs, revenues and your profits. When factoring your revenue and profit margin, be as accurate as you possibly can. If you must estimate, do so conservatively to prevent over-budgeting.
Your total costs and expenses should include fixed costs that are always the same, variable costs that change based on your sales and semi-variable expenses that may change from time to time, such as salaries or advertising.
Your profits are what you have left when you subtract your costs from your revenues. An accountant can tell you whether you are getting an appropriate amount of profit from your business and advise you on what to change if you aren’t.
Small business budgeting tip #3: Don’t be too detailed
When it comes to creating a good budget for your business, it’s best to keep it simple. It’s enough to separate your budget into broad categories such as utilities and supplies instead of further categorizing it into electricity or paper clips. By keeping it simple, you can keep better track of your expenses and profits without becoming too overwhelmed.
Small business budgeting tip #4: Consider the future
Don’t forget to plan for the future. Maybe you don’t need to factor in any advertising this month but you should still add a line for it to your spreadsheet because you will need it eventually.
You should also consider whether you’d like to save to expand your operations or purchase new equipment in the future. If you prefer not to go into too much business debt in the form of lines of credit or loans, you may want to save throughout the year.
Small business budgeting tip #5: Factor in emergencies
You likely budget for emergencies in your personal life and you should do the same for your business. You never know when disaster could strike and while insurance is likely to pay for most of it, you could be stuck with some of the overages. It’s also important to consider how your clients’ spending habits affect your business.
For example, if one of your big clients reduces how much they spend with your company, you’ll likely need to reduce your own budget somewhere. For this reason, it’s important to have some backup funding in your business bank account.
Small business budgeting tip #6: Determine where to cut costs
If your company’s budget isn’t quite where you’d like it to be, consider where you can cut costs. Start by shopping around to see if you can find vendors who can offer you more affordable prices. Maybe you are running a direct mail campaign but haven’t focused enough on your social media.
By switching your advertising focus, you can save money and probably even bring in new clients. Some other ways to cut costs are to make large purchases at the start of new billing cycles or take advantage of special payment terms offered by your creditors or suppliers.
Small business budgeting tip #7: Update your budget each month
Your company’s expenses and profits won’t be the same every month, so it is important to pull up your spreadsheets, meet with your account and go over your budget on a monthly basis. Consider how your company performed in the previous month, how that changes your sales forecast for future months and whether it indicates you should budget for extra inventory or staffing. You should also determine if your expenses are on track or should be cut back.
It is crucial to keep in mind that you don’t need to do everything on your own. Just because you are good at creating a product or providing a service doesn’t mean your skills include budgeting–and that’s ok. Hiring an accountant or a financial planner to help you keep your budgeting on track provides you with peace of mind in knowing that your company is on the path to success.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.