Most small business owners have at least some experience with household budgeting. Whether you operate a restaurant, retail business, medical office, or some other commercial venture, your history setting spending limits and sticking to a financial plan at home gives you a big advantage, when the time comes to establish a workable budget for your business.
Do your sales ebb and flow in a predictable, seasonal pattern? Does the fluctuating price of raw materials heavily impact your business spending demands? Are labor costs and staffing concerns central to your financial flow? Answering these and other pertinent questions helps define your financial strengths and limitations, giving you the tools needed to create a sustainable spending budget for your small business.
For consistent results, working out a business spending outline, start with what you already know from personal money management, and then integrate particulars unique to your commercial operation.
Reap the Rewards
Budgeting for small business expenses accounts for customary costs of doing business, such as fixed spending on rent, loan payments, and other overhead, but well-crafted budgets also anticipate additional, variable spending needs.
While it isn’t always easy to predict future spending, a forward-looking business budget outlines cash flow expectations and provides a financial guide to follow, as you field day to day demands. Budgeting benefits include:
- Effective long-range financial planning
- Better day-to-day money management
- Prepares you for unexpected financial challenges
- Tracks debt and payments
- Enables you to make informed business decisions
- Helps you monitor finances at a glance
- Motivates you to reach important milestones
Though each commercial venture has a unique set of financial demands and challenges, most owners can bank on these small business budgeting tips.
Maintain a Flexible Spending Plan
Business cycles and revenue streams aren’t necessarily steady, so your business budget can’t be rigid either. While it’s important to be honest and accurate with your finances, even the best budgets need some wiggle room, allowing you to adjust as spending needs emerge.
A dynamic budget can help you respond to an uneven financial flow, giving you the time needed to make changes, before a larger problem develops. Lose a client? Face a short-term freight hike? Tax time? These and other variable conditions may affect your cash flow, but the peaks and valleys have less of an impact on your long term financial health, when your budget accommodates a flexible flow. Sales and revenue, as well as business loans and other sources of working capital are accounted for in a comprehensive budget, tracking earnings and expenses without inaccurate financial guesswork.
Budget as a Team
Small business owners wear many hats, so you may think budgeting falls on your shoulders alone. Tackling the corporate budget without help is an uphill climb; don’t underestimate the task. Whenever possible, ease the burden by enlisting help during the budgeting process. Your staff is a valuable asset, offering valuable insight into your financial flow.
- Everyone has a Stake – Whether it’s a key advisor or a line employee, recognizing input from team members is good for morale. Staff at every level performs better when workers have a stake in the organization’s grand scheme.
- Diverse Perspective – You may be the one writing the checks, but that doesn’t mean you understand every aspect of daily operations. Embracing employee input gives you a wider perspective, helping you make informed budgeting decisions and identify cost-cutting opportunities.
- Shared Focus – Crafting a budget not only accounts for past spending, but it also highlights how you plan to spend money in the future. Budgeting as a group brings key staff members on board during financial decision-making process, so everyone emerges from the process with the same goals in focus.
Revisit, Review, and Revise Your Financial Plan
Commercial conditions continually change, so a business budget is never carved in stone. On the contrary, effective budgets require frequent review and revision. Establishing review periods, every month, quarter, and calendar year provides helpful comparison points you can use to track growth and spending trends. And when your business experiences a dramatic change, such as expansion, major capital expenditure, or hiring increase, revising your budget projections can help your company transition, without losing sight of your long term financial plan.
It’s Really That Important
Effective budgets track business income, debts, and fixed costs, as well projecting long-term spending needs and “big picture” financial plans. With the health of your business and future profitability at stake, you can’t afford haphazard money management; a budget provides a blueprint to follow.
If you’ve never devoted resources to detailed, comprehensive business budgeting, establishing a working budget may seem labor intensive. Fortunately, there are payoffs in store for small business owners that follow through with discipline and consistency.
After you’ve first gathered data and created a process that works for your organization, budgeting is easily integrated into daily operations. Whether you embrace the advantages of financial software or rely on old-fashioned ledgers and receipts, there’s no substitute for accurate record keeping and flexible, comprehensive small business budgeting.