Whether you are just starting out or you’ve been running a business for years, as a small business owner, you know the importance of having a budget. A good budget helps you set targets, prioritize activities, and track spending. Here are some things to think about as you create your budget.
Know your short and long term risks: Every business encounters risk. Have you asked yourself recently how changes to employment law could affect your business; one example would be an increase to the minimum wage. If you are in an area prone to certain natural disasters, you will want to assess the impact that will have either in physical damage to your location and/or inventory or a loss of business due to a decrease in customers. Knowing and defining the risks you may encounter helps you to budget what you should be spending on various types of insurance as well as how much you should put into an emergency cash reserve.
Know your sales cycle: Most organizations go through busy and slow periods during the year. Being able to predict those periods of time and knowing how you will cover your fixed expenses should be reflected in your budget planning. Having a budget plan also provides the opportunity to look at ways to keep other expenses down during those slow times.
Plan for large purchases: Some large purchases cannot be planned for; for example, a piece of equipment breaks down unexpectedly. But, other large expenses can and should be anticipated. A good budget will allow you to make financial projections as to when certain purchases will be most beneficial to your business. Having a plan for buying new equipment or vehicles as well as physical improvements to your location or office are all items that can and should be planned for in advance.
Don’t forget savings: When the money is coming in, it’s hard to remember the lean times. It’s also very tempting to splurge on items that may not be necessary at the time. It is important to be sure that saving part of your profit each month is part of the budget plan.
Revisit your budget frequently: Planning the budget shouldn’t be a yearly or even quarterly event. Your budget is a dynamic part of your business and should be evolving and changing as needed. Looking at it each month can give you the confidence that you are on the right financial track or give you the information you need to correct your course.
Your company budget should be a part of the overall strategic plan to help your organization reach its financial goals and operate efficiently. Having a good budget in place helps you know when and where money is coming into your business, where your expenses are, and allows you to plan for the future.