Business Budgeting Tips
A business budget is a vital tool to help you manage your cashflow. It is no surprise that small business owners often suffer from tight cashflow. It is therefore essential to make sure there is enough money available to keep the business running, growing and competing.
Without a budget or a plan there is a risk that spending will be haphazard. This type of spending leads to cashflow problems if there is not sufficient income generated to cover expenses.
Tools to create a useful business budget:
There are a number of accounting/bookkeeping packages that contain the ability to record budget data. This is particularly useful as you can quickly compare your actual income and expenses to the budget.
You can run a report each month to compare budget v actual and the resulting variance. Xero, for example, has some guidance on creating budgets HERE.
Personally, I love using a simple spreadsheet - quick and easy to tweak as required, and you can see at a glance the impact of changes to income and expenses.
I have created my own template that I use with clients. If you fancy a copy head over to the Resource Library. Simply sign up to access this template and a heap of other tools.
Tips to help you create your business budget
Here are my tips to create a budget that is useful - remember this tool is only going to help you in your business if you use it!
You should be measuring your performance to your budget regularly, making adjustments as required to ensure your spending is kept in control.
Over-estimate your expenses
If you are not entirely sure of your expenses it is prudent to over-estimate. It is easier to give yourself room for movement than not allow enough and under-estimate the amount of income you need to generate each month to keep operating!
Be realistic
Don't try and fool yourself that you can do things cheaper than you know you can. Likewise, make sure you carefully factor in the timing of your business income.
Analyse
Go through all of your business expenses with a fine tooth comb, even the smaller expenses. Small expenses, and small amounts of over-spending soon mount up!
Update your budget every month
Business is dynamic, things change, so review your numbers each month and update future months based on performance and new information as it comes to hand.
Plan for growth
Carefully factor in expenditure required to grow your business - this could be new plant and equipment, or perhaps an increase in marketing costs.
Aim to clear business debt
Focus on paying off your business debt - is there any spare cashflow you could be using to clear up debt faster?
Factor in sufficient buffer for tax
Make sure you know exactly how much and when you need to pay in taxes - this needs to include savings for future tax liabilities based on your profits - seek the right advice!
Create a buffer for emergencies
Set aside a portion of each month's revenue into a savings account to cover unexpected expenses!
Be flexible
Make adjustments as and when required. It is OK to tweak your budget every month to get the numbers right.
Pay attention to cashflow
One reason you create a business budget is to make sure you have enough funds to operate your business. Cashflow problems ruin the chances of business success, so pay careful attention and seek advice where necessary!
Don't forget - you can download a free budget template from the Resource Library - I encourage you to use it, tweak it and monitor your performance!
Understanding the numbers is crucial to business success. So many business owners neglect the numbers, and I guarantee that this is a recipe for disaster!