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Below are 6 tips for small business budget planning.
But first things first...What is a budget?
The dictionary defines a budget as "...a plan for the coordination of resources and expenditures".
So a budget is sort of like a road map for your small business. A guide.
Creating your small business budget shouldn’t be something you look forward to with as much anticipation as a trip to the dentist. It is a workable document and you can set it up anyway that works for you. Whether you create your budget with a pencil and paper, a computer spreadsheet, or business accounting software, remember these simple small business budget tips...
Small Business Budget Planning Tip #1: Break your Budget up
You can prepare some general goals for the year, but then concentrate on preparing a more specific budget every month or two.
Small business revenue can be unpredictable at times and monthly budgets can be easier to project.
You can better spot real changes and revise your budget accordingly by preparing monthly budget breakdowns and comparing them with actual dollars spent and received. Keep on top of what is spent, and your budget will reflect it.
Small Business Budget Planning Tip #2: Analyze Last Year’s Budget
A good place to start is a careful review of your small business’s sales history. Has it increased these last few years or declined? Figure the percentage of increase or decrease.
Same goes for your expenditures. Budgeting for fixed costs such as mortgages is easy. However, determining your variable cost such as utilities can be very challenging. Gas and electric charges have skyrocketed in the last few years. Check now what the going rate is and what your utility provider projects to be the cost by January/February of next year.
If your business is a start-up, you will have to make your projections based on researching similar business to yours. Sometimes you can visit local business that are for sale and asking questions about weekly or monthly revenue and traffic patterns. You can also research your business’s trade journals. If renting space, asking your landlord for a utility history may also be feasible.
Small Business Budget Planning Tip #3: Be Flexible
Budget projections are just good estimates or guesses. Realize you are sometimes going to miss your estimate. That is where reviewing and adjusting your budget periodically comes in.
For example, if you budgeted $350 for your utilities: however, your actual utilities end up running you almost $400 a month---you just need to adjust your allocation for your utilities up $50. Hopefully something else isn’t running as high as you forecasted or best scenario---your revenue is coming in better than predicted--otherwise you are going to need to cut cost somewhere.
Small Business Budget Planning Tip #4: Keep Close Track of your Cash Flow
Check your budget regularly. Examine your cash flow and make sure you have sufficient funds to meet all of your liabilities. If your revenue is not matching up with what you projected, trim back your expenses accordingly.
However, if your revenue/income is doing better than expected, it might be time to invest in some better equipment or building a comfortable cash cushion.
Small Business Budget Planning Tip #5: Build a Nice Size Cash Cushion
It is really difficult to get ahead with the challenges small businesses face today. One way is to try to build some reserves over time that can help meet those unexpected expenses and significant increases. If you can afford it, set aside a set percentage of your monthly income. Even budgeting for potential interest earned on the operating bank account can help towards meeting your budget goals.
Small Business Budget Planning Tip #6: Consult an Expert
Ask a CPA, financial adviser, or banker to help you set up a budgeting system that will work best for you.
Once you have your budget completed, don’t stick in a desk drawer or file, never to see the light of day again, or until you need to create next year’s budget. Keep it where you can get to it and review it often. Create those mini monthly budgets. They can provide you with wonderful financial management tools. You can anticipate peak periods and plan vacations and special promotions for the slow periods.