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Building A Successful Year-Round Small Business Budget
With tax season behind you, did you (once again) vow to get better about business budgets for next year? How about promise to make sticking to a budget a priority every month, not just before tax time? Wonder if you’ll (once again) you’ll fall short of keeping this commitment mid-summer? Luckily, this year will be different with some simple strategies to keep you financially on track.
Getting organized with a dash of flexibility
If you begin your budget planning by thinking about all you have to do, all you need, and all the resources you may not have yet, you’ll be way too exhausted to even think about getting started. It’s best to start small by address simple changes and tweaks. It’s amazing how working on small bite-sized pieces can bring your budget together in a short amount of time.
Appreciate the budget
Few people love budgeting. The people that do are typically accountants or financial consultants. However, if your business is like many small businesses, you can’t necessarily afford full-time financial experts thereby putting much of this responsibility on you. Shifting your opinion on budgeting is a critical and effortless first step. Remind yourself that budgeting is not an annoying necessary evil but rather a way to achieve control.
You can better anticipate oncoming traffic (i.e. peak sales periods, decreased inventory volume) by meeting it head-on with a smart plan. For example, use slow times to ramp up marketing activities or plan training seminars. Budgets help you transition away from the game of catch-up and into sitting in the driver’s seat.
Embrace monthly budgets
Many small business owners assume budget work is finished once the yearly or quarterly budget is finalized. This couldn’t be further from the truth. A solid budget should be revisited on a monthly basis with your management team. Depending on your business performance, previous month expenses, and your upcoming sales forecast, your current budget plan might not make sense. In order to meet your goals, your business may need to do a combination of things ranging from boosting inventory and labor to scaling back on your advertising budget for the month. However you work it, the goal is to stay on track for the month in a way that it does not harm the rest of the year.
Play with the numbers
For the most part, all businesses live and die by trial and error. Some things work great and some things fall short. There is also a huge middle ground between success and failure, and playing with numbers helps you find this happy place. If you aren’t getting the response you anticipated (and deeply need) for a new product launch in a new market, what happens if you increase your marketing budget for the next three months? If your cost of acquisition is too high, what happens if you stop investing in one advertising medium but invest double in another? Use research-backed information while you input “what if” scenarios into your budget, and then put it into practice. Even in a single month, you’ll have a pretty good idea if this new strategy is working or if you need to shift gears again next month.
Get paid faster
Cash flow reigns supreme in any business, regardless of size. Every company needs enough cash on hand to keep the lights on and pay employees. Look at your own business. Is there a way to get paid faster and more efficiently? If you are a small business that has typically relied on checks for payment, can you start deducting payments directly from your customers through their bank accounts (ideal for reoccurring monthly payments that do not change), or issue electronic invoices that can be paid online immediately with a credit card? If there is a way to speed up your invoicing or account receivables, do it. It will help you stay ahead without running the risk of scrambling for cash.
Expect the unexpected
On any given day, a client could decide to slash their budget or even drop you as a provider. All businesses need to plan ahead for these unexpected yet fully possible scenarios that can put you in a tailspin. Know how long this will impact your cash flow and how much time you have to replace this client without permanently damaging your bottom line. If you need to increase your marketing budget or hire new business consultants to fill this gap, research these costs before the situation becomes a reality. This “disaster planning” adds a whole new level of security to your business.
Discover the right budgeting tools
Budgeting tools range in capacity, functionality, and price. If you don’t have much to spend, resources like SCORE have free financial projection templates to calculate things like your startup expenses, payroll costs, sales forecast, cash flow, income statement, balance sheet, breakeven analysis, financial ratios, cost of goods sold, amortization and depreciation. If you have money in your budget for proper accounting tools, look to a variety of accounting software systems that can provide deep insight and benefits into your current financial standing and growth projections.
Put budget performance and incentives hand-in-hand
Budget performance is a company-wide goal and should be treated as a priority. Once you tie performance bonuses to your budgetary goals, employees will become very invested in helping your company meet them. At the start of the year, put these goals and incentives into place and ensure everyone is clear on the objectives.
Change on a dime
If your budget is not working, it’s time to get all hands on deck. Whether you need a new accounting infrastructure or a part-time bookkeeper, get proactive in your approach. Instead of wallowing in deep waters without a life raft, take action to reroute the ship right now before it’s too late.
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References:
http://www.sba.gov/blogs/how-build-and-use-business-budget-thats-useful-all-year-long
https://www.score.org/resources/financial-projections-template