Every business owner in the world has a slightly different way of setting and managing their budget. Having said that, there are still certain elements which you can find in pretty much any successful budget. For example, most business owners have to make rent or mortgage payments on their business premises. On top of that, there’s payroll, utilities, raw materials and taxes. The main point here is that all business owners have to consider all their costs very carefully if they want to have any hope of success in the future. Here, we’ll go through some of the best advice for any business owner trying to draft a budget which they can rely on.
The first piece of advice I can offer is to define and understand all of your risks. There isn’t a single business model out there which doesn’t have at least some risk tied to it. The ones that are facing your business have the potential to disrupt your bottom line and cause a lot of fiscal damage to your company. If you want to plan well for the future, then you need to find out as much as possible on both the long and short-term risks which your business could be up against. Do you need to buy a material which often fluctuates in price? Are you operating in an area that has a high crime rate? Is there an election coming up which could change the minimum wage or health care standards for employees? Every good budget will have an emergency fund – something to bail you out of disasters and keep the business ticking over when it hits a rough patch. Once you have a good idea of the risks you’re facing, you’ll know that you won’t have an emergency fund that’s too high or too low.
From Flickr
Next, be sure to overestimate your expenses. While this isn’t as important for smaller, B2C operations, it’s essential for a B2B business. When your business is running on a project-to-project basis, every client will have certain little differences, and no two projects will have the same figures surrounding them. This means that it will often be very hard to predict when an expense is going to tip you over your budget. Every single business project will have a one-off expense that no one in the company anticipated. It’s usually an item that wasn’t premeditated, but ends up being necessary for the job. At other times, it’s a simple mistake of estimates, for example when a roofing company runs out of metal panels and shingles before they’re finished. If you have to send out for an extra component or a little more of a given material, it’s no big deal. What is a big deal is having a deadline to meet, and no money to buy the necessary materials! Whenever you’re thinking of bidding for a project, be sure to overestimate the expenses somewhat. This will give you more wiggling room if you run into any unexpected difficulties further down the line.
Next, make sure you know your sales cycle like the back of your hand. No matter how great of a CEO you are, no business is static. You’re going to go through periods of ups and downs over the course of the year, and it’s important you know how to deal with them. If your company goes through a slow season, then you’re going to need to make up for the financial drain that comes with it. You should also use this time to take a step back, take a rest from the rush of it all, and plan for the next time your business hits a boom. If you understand your sales cycles, you’ll be at much less risk of any big pitfalls further down the line. It will make it easier to predict falls in profits, and bolster your marketing efforts to make sure your business doesn’t grind to a halt.
From Flickr
When creating a budget, it’s also important to plan for any major purchases carefully and well ahead of time. Unfortunately, some of the largest business expenses can pop up totally out of the blue. For example, when a big piece of equipment breaks down and needs to go in for repairs. When it comes to purchases though, there’s no excuse! Renovations, equipment, new software, and so on need to be planned for well in advance. Budgeting carefully for these kinds of expenses will help you steer away from all kinds of big, financial burdens which could spell disaster for your business. When there’s any major change on the horizon for your business, you need to make sure that you’re planning carefully for it. The risk and reward needs to be balanced out, and you need to have a clear understanding of the financial and corporate landscape you’re dealing with. When you have an updated budget and solid financial projections, you’ll find it much easier to time your big investments perfectly.
Finally, make sure you never leave your budget alone in the future. Just like the state of your sales figures, your budget isn’t going to be static. You’re going to need to tweak and turn things around as various elements change the growth and profit patterns for your business. Make sure that you’re coming back to your monthly an annual budget on a regular basis, and giving yourself a detailed, up-to-date picture of your finances. When you’re constantly revising it, you’ll know exactly what your business can afford and what it can’t, and be able to make more accurate projections for the year ahead. Make sure to take your past performance into account, and compare it to the actual financial figures you came out with. It may sound like a relatively simple move, but constantly re-visiting is essential for your continued success.
If you felt that you were struggling to manage your business’s budget, then I hope this brief guide has made the whole subject easier to digest. When you have a good budget in place, there’s very little else to worry about!
This article was provided by ellie jo