Let’s talk Business:Six Steps to a Better Business Budget

..with Ndungutse Robert

You've just purchased or opened a small business and you know your trade, but when it comes to bookkeeping and, more specifically, budgeting, your skill set is lacking. It's OK - the good news is that it is possible to come up with a budget, or at least a good estimation of what will be needed in terms of income and expenses.  

Read on for six simple tips that will help you put together a top-notch small business budget.

Why Budgeting Is Important
Estimating and matching expenses to revenue (real or anticipated) is important because it helps small business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in or, conversely, not spending enough money to grow the business and compete.

What To Do with Revenue
With a business that is already up and running, you can make assumptions of future revenue based on recent trends in the business.

If the business is a startup, you'll have to make assumptions based on your geographic area, hours of operation and by researching other local businesses. Small business owners can often get a sense of what to expect by visiting other local businesses and asking questions about weekly revenue and traffic patterns.

After you've researched this information, you should then match the business's revenue with expenses. The goal is to figure out what an average weekly expense for overhead, utilities, labor, raw materials, etc.

would look like. Based on this information, business owners may then be able to estimate or forecast whether they'll have enough extra money to expand their business, or to tuck away some money into savings.

Let's look at six tips that will help you plan your small business budgets.

1: Check Industry Standards
Not all businesses are alike, but there are similarities.

Therefore, do some homework and research about your particular industry, speak with local business owners, and check the Tax Agency offices to get an idea of what percentage of the revenue coming in will likely be taxable, and other legal obligations.  

Small businesses are more affected by industry downturns than larger ones, so take care while doing research to determine your business’ volatility.

2: Make a Spreadsheet
Prior to buying or opening a business, construct a spreadsheet to estimate what total amount and percentage of your revenue will need to be allocated toward raw materials and other costs. It's a good idea to contact any suppliers you'd have to work with before you continue on. Do the same thing for rent, taxes, insurance(s), etc.

3: Factor in Some Slack

Remember that although you may estimate that the business will generate a certain rate of revenue growth going forward or that certain expenses will be fixed or can be controlled, these are estimates and not set in stone.

Because of this, it's wise to factor in some slack and make sure that you have more than enough money socked away or coming in before expanding the business or taking on new employees.

4: Look to Cut Costs
If times are tight and money must be found somewhere in order to pay a crucial bill, or capitalize on an opportunity, consider cost cutting.

Specifically, take a look at items that can be controlled to a large degree. Some thoughtful maneuvering here could provide the business owner with much needed breathing and expansion room.

5: Review the Business Periodically
While many firms draft a budget yearly, small business owners should do so more often. In fact, many small business owners find themselves planning just a month or two ahead because business can be quite volatile and unexpected expenses can throw off revenue assumptions.

6: Shop Around for Services/Suppliers
Don't be afraid to shop around for new suppliers or to save money on other services being performed for your business.

This can and should be done at various stages, including when purchasing or starting up a business, when setting annual or monthly budgets, and during periodic business reviews.

Conclusion:
Budgeting is an easy but essential process that business owners use to forecast (and then match) current and future revenue to expenses.

The goal is to make sure that enough money is available to keep the business up and running, to grow the business, to compete, and to ensure a solid emergency fund, for those times when business won’t be so good.

Ends