Having a small business can be quite difficult to handle from a financial point of view. The master budget made for any business consist of a financial budget and an operating one. You need the master one if you want to create a strategic plan. Today we are going to look at how you can create your own financial budget to set up your business for success. Then, we will also see some tips on how to manage budgeting for small business.
Why Do You Need a Budget?
Budgeting for small business isn’t as hard as it may seem. The key here is to be organized and use the right tools. The budget can help you control the inflows and outflows of cash, as well as assess the overall financial position. With the financial budget, you plan and control the cash circulation. The operating one oversees describing the activities that generate income. Regardless of the type of budget you want to create first, you can’t keep track of all the company activities without such a document.
How to Create a Budget for Your Small Business Step by Step
1. Create an Easy-to-Use Spreadsheet
Any person who tried at some point to organize data knows that spreadsheets are a blessing. In this case, you will need to open, update, add to or review the business budget several times a year. That’s why it needs to be easily accessed. Google Drive is a good idea, and so is a Dropbox file everybody can access, for instance.
2. Split It into Months
Even though it’s a good idea to keep track of the yearly evolution, you will have much more control if you divide everything by months. Set some financial expectations for each month, but don’t overdo it. Remember that setting some exaggerated goals will only demotivate you instead of helping the entire team.
3. Compare the Budget to the Actual Amounts
If you followed step #2, then you have a budget for each month. However, you might be surprised to know that there are some differences between the budgeted and actual amounts. Some missing amounts can raise you a red flag, but luckily you have the time to correct any mistakes by the end of the year.
4. Look at the Operating Expenses
If you have a proper budget, you will manage to reconcile both your expenses and your business income every month. This is helpful if you’re the only one doing the bookkeeping. Moreover, if you keep track of operating expenses regularly, it will be much easier when you’ll need to do the tax return.
5. Put It All Together
Luckily, for this step, there are plenty of budget templates available online. You can start with a sample spreadsheet and adjust it to your own needs and conditions.
This is a simplified version of any type of budget you might need. Further on, we will focus a little on the financial budget. Many young entrepreneurs struggle with this, so we’re going to present the main three sections that should be included in it:
- Cash Budget
This is your typical cash budget that shows the inflows, outflows and the net cash flows. If you run a small business, you may have problems with the cash flow, for instance. Often, you need to pay cash to the supplier but sell on credit. Such a section can help you avoid such situations when budgeting for small business.
- Budgeted Balance Section
This is the result of the production and other budgets. Here, you can try to create a balance when it comes to production, distribution or similar costs. You need to consider the rest of the budgets you create as well.
- Capital Expenditures
Occasionally, you will need to decide whether you should replace your equipment or plant or to buy some new ones. Capital assets represent, in general, large purchases. They cost a lot and last for several years, which is why you need to think twice before taking a decision.
How to Make Your Small Budget Business Work – Tips and Tricks
1. Be Flexible
As the owner of a small business, you need to be flexible. There are going to be plenty of problems and things to solve, but that doesn’t mean you should stop there. The key here is to adapt to any conditions that may arise. And don’t worry, learning comes with experience.
2. Define and Understand the Risks
Naturally, every venture implies some risks. Instead of being taken by surprise by them, you should think about this beforehand. Think about all the factors that could influence your success: the geographical area, the minimum wage or other health care requirements, the population, etc. Divide them into short- and long-term ones. See how much money could you set aside for such situations, which leads us to…
3. Have a Cash Emergency Fund
Take a part of the revenue for each month and place it in a savings account. Even though you will be tighter with the budget, you’ll be happy you did this if you’re ever in an urgent situation, such as a big bill or an economic downturn.
4. Overestimate the Expenses
No two projects are going to be the same, as much as you’d want it to. When budgeting for small business, you should write down a bigger amount for any project. If you can get it cheaper, it’s perfect, but why not be on the safe side?
5. Restrain, but Don’t Be Rigid
It’s natural to show a little restraint when you have a small budget. However, if you find something that would be useful for your business, don’t be rigid. Sometimes, a small investment can go a long way. The key here is to be reasonable and objective.
Budgeting for small business is no easy task. However, with the models and tips included above, you should have a general idea of how to start. Luckily, there are plenty of other pieces of advice and models available online, so inform yourself and take advantage of them.
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