December 17, 2013

Creating A Budget For Your Small Business

small business budgetingNow, in the midst of presents being wrapped and holiday orders being shipped out, may not seem like the best time to sit down and figure out your small business budget for the next year, but it’s important to try to carve out some time to dedicate to the budgeting process before we welcome in another new year.

Why Is Budgeting Important?

Just like you don’t want your personal and household expenses to be higher than your income, you also don’t want to be spending more money than you’re making in your business as well.  For small businesses, the saying goes, Cash Is King – meaning that because sources of outside capital are limited for us as small business owners, we always have to focus on our cash balances and make sure we have the cash on hand necessary to pay the bills and fund future growth.  The only way to do that is if we go into the year with as good an idea as possible as to how much money we’ll be making, how much we’ll be spending, and the timing of the two.   We’ll look at all of those in more detail tomorrow.

How To Use Your Budget

Budgeting certainly isn’t an exact science – you’re being asked to make your best guesses or assumptions on your future sales and your future expenses.  But the power of budgeting is that not only will it help give you an idea of what you expect to see in the coming year, such as when you can expect to see increases or decreases in sales for example; it also allows you plan proactively as to how you’re going to react when and if that happens.  For example, if you’re expecting that sales will decrease in Q3, you can proactively plan for ways on how to ward off a cash crunch those months.  Perhaps you won’t do (and thus won’t budget for) paid online marketing for those months?  Or maybe you’ll cut back on your kitchen time so you don’t have to pay as much in rent?   Alternatively, if you’re projecting great Q4 sales, are you anticipating that part of those sales will be driven from your marketing efforts in Q3?  If so you know that cutting advertising in slower months is not a good plan and you’d look for alternatives.

The other way that building a small business budget now can be a huge benefit to you is that it gives you a way to gauge how your business is performing.  Are you spending more than you originally anticipated in any given month and, if so, is that because sales have increased more than you expected (and thus raised your Cost of Goods Sold) or do you need to look at ways to cut your expenses if your revenue has remained flat?

Having that budget to go back to month after month and compare how you’re really performing against how you anticipated you’d preform enables you to keep an eye on your cash.   Cause just like in your personal life, the last thing you want to be surprised by is not having enough money in your account when you need it!

Check back tomorrow for more information on how to project your business revenues and expenses for budgeting.

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