Creating and maintaining an effective budget for your small business is vital, but can often be overlooked considering how many other factors go into building a company. The common motto is that you have to spend money to make money, but there is a cut off point that can lead to problems if crossed. This article will discuss a few simple ways to begin the process of setting up a budget for your small business and maintaining it as the months and the years progress to ensure that you are staying on track with the growth of your company and making a little extra income than predicted.
First and foremost, you have to make time to sit down and create a budget. This takes more effort than most are preparing to put in and can often be too exhaustive to keep up for however long it takes, but it is necessary in knowing exactly where you are starting off and projecting where you want your business to be in a few year’s time.
A simple way to do this is by sitting down with your accountant and going through all your numbers to be sure that what is being documented is accurate before you begin to budget around it. You can even store and share all your financial information within a secure virtual data room so that you and your accountant can access it whenever necessary and always stay in communication regarding your finances.
Know Your Income Sources
When beginning your budget, it’s important to know your starting off point. You can’t accurately prepare for your business’s future without really knowing what it’s currently making and where that money is coming from. If you are selling jewellery on an online platform such as Etsy, half of your income could be coming from direct purchases and the other half could be from the blog you use to promote your products and occasionally collaborate with other brands. Rather than letting smaller sources of income go unnoticed, take the time to recognize what makes you your money and budget around it in order to save more than you expected to in the year.
Know And Predict Your Expenses
There is a certain amount of expenses that are built into running your business and those should be documented as often as possible. However, there are also expenses that you will need to predict will incur in the following months or years and for those, it is better to overestimate than underestimate the. When you underestimate how much you will need to pay on less regular, one-time charges the more likely you are to end up with less income than you would have hoped for. By overestimating, you are able to account for unexpected charges and even save a little bit more if a cost is less than you initially planned for.
Keep The Budget In Mind All Year Round
There’s really no use to budgeting if you don’t keep it in mind all year round and revisit it regularly. Rather than just documenting your income and expenses—either on your own or within your data room with your accountant for added assistance—and forgetting about it for the rest of the year, be ready to recognize when you haven’t made what you expected to in the recent months and analyse why you might have had this shortfall. Or, perhaps, you made more than you were expecting to and that could mean that your targets were too low and should be revised in the future.
Prepare For Emergencies
Lastly, you should always expect the unexpected and make room for them in your budget, whether that be overtime for you or your employees or possibly a bad batch of materials for your product that need to be repurchased. Mistakes and short-sightedness are unavoidable, especially on the tumultuous waters of running a small business, so always be sure to factor those in when you are preparing your yearly budget. Preparing for these errors or emergencies in advance will save you a lot of headaches in the future when these unexpected issues arise without any precautions having been set in place to soften the blow.