A simple monthly budget can make or break any small business | by Christina M. Grice
Entrepreneurs often fail to realize that a business is a living, breathing thing that a business owner has given a pulse. Your business is going to mimic the spending behaviors in your daily life (whether good or bad). Most small business owners go into business for themselves to remove the feeling of having restrictions. Ironically, having to create and commit to a budget reintroduces restrictions.
Budgeting for a business can be a daunting task for many people. However; creating a simple, monthly budget is a great first step toward a successful venture.
Traditionally, business owners design budgets by first weighing income then then factoring in expenses, which more often than not leads to unrealistic cash-flow projections. This is usually due to the tendency to tamper with the expenses in a failed attempt to balance a budget whimsically.
To avoid this tendency, I encourage clients to assess their business’ projected income in the final phase. We start with focusing on the expenses before tallying up the business income. I remind clients of the importance of being realistic and accurately tallying these expenses. Note: taking the time to go over bank statements helps avoid missing entries.
Here are the three types of expenses to consider.
Fixed costs — Any monthly expense that remains constant such as rent or insurance.
Variable costs — Costs that vary with the level of output or productivity from sales. Advertising, production supplies, and materials are all considered variable costs because they are an inconsistent or varying expense.
One-time costs — Often unpredictable purchases must be budgeted into one’s monthly overview. Many times, owners fail to prepare for the unexpected, i.e. a costly expense such as a computer or other unexpected repairs.
Let’s break it down even further. This is simple math, no intimidation or fear factor here. It is about healthy financial awareness. Add expected monthly expenses together. Next, apply projected income. Be conservative. It’s better to be too low than too high. Once you apply projected income and deduct expenses, the number you are left with will be considered your roadmap and will help determine whether you need to readjust or move forward.
Though a budget is a vital tool for businesses, it means nothing if you do not reassess the “actuals” at the end of each month.
It’s common for a business to suffer losses in the first one or two years in business. However; by reflecting, reevaluating and most importantly modifying your business spending practices, you can begin to minimize business losses.
Here are a few simple yet creative ways to begin cutting costs:
Go paperless — By going paperless, you can decrease your office and payroll expenses. According to the Environmental Protection Agency, a paperless office saves approximately $80.00 per employee annually.
Consider working with a bartering service — In doing so, you harness the power to negotiate your own barter, potentially decreasing the costs of things like: advertising, office supplies, and accounting services while keeping cash in the bank.
Outsourcing — Outsourcing can offset your payroll and advertising expenses. Some entrepreneurs who’ve adopted outsourcing practices have been able to reduce their hiring costs by more than 50%.
Use social media — Paid social media advertising is much less expensive than traditional advertising. Maintaining a vibrant and active social media platform can have a positive impact on your business revenue.
Renegotiate credit card processing services — Use competition between merchant service providers to your advantage and negotiate cheaper rates.
Not only are budgets meant to serve as a financial roadmap for a business, but when used effectively, budgets can promote and boost revenue giving you the clarity you need to make better decisions and effectively track your return on investment. Budgets don’t guarantee success, but they do provide you with a benchmark from which to draw “positive” growth expectations month after month.
It is important to define your values as applied to your business’ message and/or model. There are few businesses that don’t need to tweak their business model in one way or another. However; using data collected from your budget and regular allows you determine the things that are working well for your business and those that can use refinement. When this data is accurate and updated regularly, you’ll have the ability to make adjustments swiftly minimizing potential losses.