5 Budgeting Tips for Small Businesses
Every business needs a budget to be financially successful. But when it comes to small businesses that have little room for economic error, budgeting – and sticking to the plan once you’ve laid it out – is downright crucial.
Over time, large businesses often are able to stash away significant sums of cash that they can use for a rainy day. Whether it’s an unforeseen growth opportunity or a complete disaster, these reserves allow companies to keep running no matter what the world throws at them. Moreover, one of the upsides of being large is that there often are redundancies that can be cut without crippling operations.
But do the math. If you’re a small business, almost every penny you have is being spent on keeping the business alive and growing. And if you’re a company with two employees, you can’t exactly pull a 5 percent or 10 percent “workforce reduction” to offset a disappointing year.
Budgeting, then, is crucial for any small business, as it will ensure that you can account for every dollar coming in and make sure it’s directed to where it needs to go. It also gives you a blueprint of what the year should like so that when you do regular reviews, you’ll have advance warning if something is amiss, giving you more time to pivot than if you simply found out at the end of the fiscal year.
It’s tough, but here are a few small business budgeting tips to help out:
5 Small Business Budgeting Tips
1. Have the Basics: No two corporate budgets will look the same, but they’re all going to sport a few similarities. For instance, you’re likely going to have rent, utilities and payroll, and you’ll have to pay taxes. Smartsheet provides business budget templates for several types of companies, so even if you don’t ultimately end up using one, they still can give you an idea of what yours should look like, and what information it should contain.
2. Know the Difference Between “Need” and “Want”: About those budget basics. If you require office space or a storefront to operate, you need to pay rent or a mortgage. You’ll need to keep the lights on. You’ll need internet access. You need to pay taxes. But more often than not, budgets also tend to include items that are non-essential. Think money set aside for the occasional team powwow or office beautification. If you can make the numbers work and still grow your business while making those expenditures, great – go ahead and keep them. However, if you know item by item what’s truly necessary and what isn’t, it’ll make your “tough decisions” easier should you have to quickly navigate a budget crunch.
3. Update Your Budget Every Month: Corporate budgets typically cover a 12-month period – often, but not always, lining up with the calendar year. But that doesn’t mean you create a budget, unfurl it on Jan. 1 and check back in on Dec. 31 – a lot of surprises can happen in 365 days. Every month, review your budget as well as the prior month’s (and months’) numbers to see if you’re on track. If you’re starting to run behind on revenue, you may have difficult decisions to make … but it’s much easier to correct course with many months to work with. Conversely, if you see you’re actually getting ahead, you can start funneling a little cash toward your company’s rainy-day fund.
4. Round Up Your Expenses: When you go to the grocery store, have you been asked if you want to “round up” your bill and divert those few extra cents toward a charitable organization? It’s only a few pennies at a time, but they add up. That’s part of the idea behind overestimating your expenses. Typically, underspending is a much less harmful crime than overspending, so it makes sense to be conservative and estimate costs a little higher than they might come in. And again, if you find at mid-year or the end of the year that you’ve underspent (which by doing this becomes a little more likely), you can take the leftover funds and sock them away.
5. Get Help from the Pros: McManamon & Co. can help you put together your small business’ financial game plan. Our consulting services span everything from cash-flow and tax planning to support with recruiting and interviewing. And our accounting services include helping companies put together financial documents … and even training staff on how to use the latest tax and accounting software.
Call us at 440.892.9088 or contact us online to start drawing up a blueprint of your company’s financial future.
Tags: budgeting, McManamon, small business | Posted in accounting, Consulting, McManamon & Co., small business