Smart Tips On How Small Business Owners Should Budget
Budgeting is an essential part of any business. What you will achieve and how you will achieve it are all down to your budgeting. There is no doubt that small business owners should budget. However, every scale of business needs budgeting.
You will need to start your business and you will need money to run it. Every step of your business development and maintenance requires that you budget accordingly. In so far as you would want to keep your finances in check, you will need to budget.
According to Annie, “ If you don’t budget and save accordingly, you’ll be in a bad way [if or when] your company takes a downturn or even has an off month. You have to account for slow payments, and budgeting can help alleviate the financial burden you may feel while waiting for a check to arrive.”.
We, therefore, want to take into account the processes involved in budgeting. Specifically, we will look at how small business owners should budget so as to stay afloat.
How Small Business Owners Should Budget
Involve your employees
You may be the business owner and possibly, the CEO of the business. Yes, congrats on that but you don’t handle the budgeting alone. You should not let the whole pressure fall on you. To achieve that, you will have to involve everybody in your company.
The essence of this addition is to enable them to become aware of the principle of budgeting. More so, they can possibly add any insight they might have on the issue.
According to Nate, the marketing manager of Maple Holistics “A proper budget is far too important and there are too many variables for this responsibility to fall on one person’s shoulders. An ideal budget should undergo intense scrutiny by a team of employees with a diverse set of skills to effectively manage a small business budget. By relying on a coordinated team, you can approach your budget from different perspectives to ultimately expect the unexpected and plan accordingly.”
Therefore, one of the ways small business owners should budget is to bring their employees and team members into the process.
You have to pay yourself well
You know you also need to get paid and get paid well by your business. Small business owners always fall victim to trying to underpay themselves so as to stay afloat. This happens mostly when they are starting off.
According to Doug Keller, “With so many moving parts, it is easy for small business owners to forget that they have to be paid as well. Some people feel guilty about paying themselves when it seems the money could be allocated elsewhere … but at the end of the day, the owner is still just an employee. You need to compensate yourself as such and find other methods for paying off other expenses.”
You don’t have to that. The process of budgeting should see business owners get paid well.
Define and understand your risks
The number one variable of any business is a risk. This is why entrepreneurs are referred to as risk-takers. One of the ways small business owners should budget is to define their risks and understand it.
How you consider and understand your risks will have a lasting impact on your budgeting.
According to Paul, “How will changes in the minimum wage or healthcare requirements impact your workforce? Do you operate in a geography at high risk of a natural disaster? Do you rely heavily on seasonal workers? Understanding the potential risks facing you on a short- and long-term basis is important for all small businesses. Once you’ve mapped out the threats to productivity, a clearer picture can be built around emergency planning, insurance needs, etc.”
You will need to list your guaranteed income and juxtapose it with the expected risk so as to fully understand the risks involved.
You will need to overestimate expenses
Things are always bound to change. To prepare a budget, you will have to overestimate your expected expenditure. The reason is that you cannot predict when a good or service will increase in price.
Small business owners should budget by estimating more than was initially required to pull off certain expenses.
Keller explains this concept very well. He said that “So much of business is planning and reacting to the unexpected. For small business owners, failing to anticipate an expense or its magnitude could prove disastrous and cripple the organization before it has had time to grow. To counteract that, it is important that business owners overestimate expenses and shield themselves. Doing so is a survival tactic that will allow owners to hedge against risk or failure.”
Pay attention to your sales cycle
Many businesses (not all) have sales cycles. They have the busy periods when business is booming and they have the slow periods. These happen in the course of one calendar year. When your business has an offseason, you will need to account for expenses incurred at that time.
Cho maintains that “there is much to be learned from your sales cycles. Use your downtime to ramp up your marketing efforts while preventing profit generation from screeching to a halt. To keep your company thriving and the revenue coming in, you will have to identify how to market to your customers in new and creative ways.”
Don’t forget that time is money
You will need to incorporate your time when budgeting. Small businesses most times forget that there is a need to factor in their time when budgeting. Time indeed is money. Some of your workers are paid for their time.
Ontra believes that “Timing underestimation directly increases costs. Not only do you start to lose time to the delivery schedule, your team also loses momentum as their collective thought shifts focus to another project.”
He maintains that “If you believe the project will finish on Friday, promise delivery on Monday. So, if you finish on Friday, deliver the work early and become a star. If for some reason time runs over, deliver on Monday, and you are still a success.”
Constantly revisit your budget
There is no perfect scenario in business because of its fluctuating nature. Therefore, note that there is nothing like a perfect, static an consistent budget. It changes with the changes in your business.
Therefore, you must make a conscious effort to review your budget at intervals so as to make the necessary adjustments.
Keller analyzed the situation well. He said that “For small business owners, it takes time to learn the cyclical nature of the business as seasonal trends naturally affect budget and organizational efficiency. Especially early on, the budget may undergo many changes to adjust to new or fluctuating costs. As a result, it is imperative that small business owners be mindful of this and stay on top of their budget and adjust it as needed.”