Being the owner of a business has its benefits. As an entrepreneur, you get to work outside the 9-to-5 timeline, have people working for you, and enjoy the potential to earn tons of money.
The only downside to it is that you sometimes need to work longer hours to make sure everything runs smoothly and to ensure that your business will make it through the day.
And, yes I am talking about finance.
In uncertain economic times like these where unpredictable crises hit – see pandemics, it’s difficult to say whether your business will survive another day. Unless you have some financial safety net that allows you to move forward or continue business as usual.
In managing your business finances, budgeting is vital. Having a budget allows you to make more effective decisions, and be more flexible with your expenditures.
Apart from being able to make better decisions though, budgeting also helps to:
- Gather resources for new projects
- Monitor performance and meet business targets
- Minimize risks for your business
- Invest in your staff and plan for the future
Planning and creating a budget is all that it takes to ensure that your business remains profitable.
If you are new to managing your finances, check out some tips that will come in handy while you build a budget for your business:
Table of Contents
1. Plan your annual budget
For your business to grow, you need to set up a fixed budget ranging up to a year. Doing so should help you come up with clear steps in terms of what actions and decisions you should take within a year’s time.
Start by considering:
- The goals you have set for your business.
- The changes in the market, customers, and competition.
- The key performance indicators for your business.
- The financial performance and predictions.
- The calculation of expected expenses and investments.
This information should organize your resources in a way so that helps you figure out what you expect to earn and what you expect to spend during the budget period.
2. Create multiple budgets
If you have a small business, you are more likely to have one budget to manage your finances, but gradually as you grow, you are going to need to have a budget for each aspect of your business initiatives. This includes sales, marketing, business development, and product management, amongst others.
In this case, you can build a development plan for each department and explore alternative ways of doing business. For example, for sales – you might hire more sales workers in your team if your budget allows. Also, for marketing, you can invest in customer education which is both cost- and time-efficient and can cover other areas of business development.
Dedicating a budget for each of the areas you are planning to develop is worth looking more into once you have at least a working budget in place.
3. Measure your numbers
Once you set up your budget spreadsheet, analyze your numbers frequently e.g. every month, so that you ensure you are in line with your financial objectives. Start with calculating your sales and expenses to measure your profits.
These are the numbers you need to look more into:
Your Sales – these correspond to the number of products/services you sold.
Your Expenses – these correspond to fixed expenses, variable expenses, and semi-variable expenses including taxes.
Your Profits – these correspond to the amount of revenue generated.
To calculate your profits you subtract the expenses out of the sales:
[sales – total expenses = profits]
Paying attention to these numbers should help you catch up on any potential problems on low cash flow and anticipate them early on.
4. Get help from the right people
An accounting tool can help you monitor your numbers and according to Clockify, there are many options to choose from.
Then again, there is the option of hiring an accountant. An accountant can help you decide how much you can spend on an area of your business. He or she can work through your financial statements and make predictions on how much money you will need to spend or invest in projects and advise you over making important financial decisions.
If you are new to the business and need some expert advice, an accountant should help you make the right decisions.
5. Revise your budget
Check-in with your accountant and go over the budget you set for your business every chance you get. Business priorities change especially in times of economic recessions or unpredicted setbacks e.g. losing an important client.
The best way to prepare for this is to review the profit target you have set for the upcoming months. Don’t forget, you need to work with real numbers here.
This means that if you are making $200,000 annual revenue, you can expect to get $180,000 or $220,000 the next year. Unrealistic estimations like jumping to 1 million in a year will only damage your business, instead of helping it.
Ready to Save Money With Budgeting?
As you can see, budgeting offers a crucial shortcut to business success. With it, it becomes easier to balance your income and expenses effectively. Following these tips should allow you to figure out how much revenue you will need to keep your business alive and thriving.
Are you working on a budget? How has this helped you develop your business? Let us know!