Careful and thorough budgeting is essential to any small business wanting to remain competitive.
1. Know your risks
Every business has some risk involved and each risk could have a financial impact on your company. Make sure you know both the long and short-term risks that your business is facing. Perhaps you employ a large number of employees on the minimum wage. If so, have you thought about how an increase in the minimum wage might impact your profitability? Maybe you’re a company that relies heavily on seasonal workers or you operate in an area with a high risk of natural disaster? Once you’ve taken the time to identify the threats to your productivity, you’ll have a much clearer picture of your insurance needs as well as contingency and emergency planning requirements.
2. Save a set percentage of every payment you receive
Every time an invoice is paid or a customer pays a bill, try and save say 30 percent to cover your tax liabilities and to put aside some savings for the proverbial rainy day. Every business owner, even the most careful, overspends at some point and having a contingency fund that you can draw on is always a good idea. What’s more, this is especially important if your business has an off-season as you will need to make sure that you have extra money in the bank to cover you over leaner periods. It’s also worthwhile taking steps to keep costs down during the off-season so that you are minimising your outgoings.
3. Carefully plan for large purchases
Sometimes big expenses occur when you least expect them. If an important piece of equipment breaks down or your delivery van needs a costly repair, then there’s not much you can do about that and you will just have to grin and bear the expense. However, some expenses such as a store renovation or computer hardware upgrade should be carefully timed and budgeted for so that you are not placing unnecessary financial pressure on your business. For every major spending decision the risks versus the rewards need to be fully evaluated. An up-to-date budget as well as data-driven financial projections are important components that will guide your decision-making process.
4. Constantly revisit the budget
Don’t make the mistake of setting your budget at the start of the year and then assuming, that’s it – job’s done. The truth is your budget will be changing and evolving alongside your business and you will need to regularly review and tweak it. At the very least you should be monitoring and revising your monthly and annual budgets every four weeks so that you have an updated picture of the financial health of your business. That way you will know exactly what you can afford to spend compared to how much you are projecting to make.
Having a sustainable and realistic budget for your business is the essential starting point for success. And so, use these tips to keep on top of your company finances.