Behind every successful business there is a sound financial plan. Budgeting is one corner of business ownership that cannot be cut, or at least that should not be cut – for in doing so almost inevitably seals you cease to exist envelope as an operable company. In order to reach future financial goals, it is imperative that you know where you stand financially in the present. This is in order to ensure that you take the right steps in the future to get to where you want to be. Setting achievable goals can help you reach financial success, but is not the optimal solution. Mapping out an accurate budget is the most effective and efficient way to meet financial goals for your business.
Budgeting is important because it helps you as a business owner know what is truly feasible and what is not, in terms of expenses and revenues. Laying out a budget will help you to understand the minimum it will take for you to operate profitably. By having a clear understanding of all the business expenses, as well as an accurate foresight into achievable estimated revenues, you will then have a clearer understanding of what it will take to keep the business afloat.
The idea of budgeting is intimidating to many, especially those who have no background in bookkeeping or accounting. However, making a budget is not all that hard. Here are 5 tips to help you draft a budget for your business that will hopefully get you on the right track toward financial success.
Utilize Accounting Software
There are many affordable and sometimes free, bookkeeping softwares available to date. Accounting software of this kind will come complete with prefilled spreadsheets that will help you to create your balance sheet and much more. With many different useful features, bookkeeping tools can help you to accurately measure your:
- Cost of goods sold;
- Material costs;
- Utility costs;
- Taxes; and so much more.
You can see with a list this long (that could have gone on for much longer) it is easy to overlook an expense, or to forget an implicit cost. Accounting software will help you to stay organized.
Know Your Expenses
Before you can accurately take advantage of the above mentioned accounting/bookkeeping software, you will need to have an accurate depiction of what it is you spend (or will spend) on a monthly basis. You can reference past financial files, bank statements and saved receipts to help you gather the needed information to come to a precise estimate. Take care to average intermittent expenses – such as insurance – over a six month period. Take your time with this step. If you are operating on a tight budget, then ‘forgetting’ a bill can really throw a wrench in your gears.
Note: When calculating expenses, do not forget to account for wastes.
With regards to your expenses, try and cut costs wherever necessary. This will potentially help to boost your budget overage. Some utilities can be expensive and not all that useful. Try implementing the use of functional, multi-purpose systems to boost the effectiveness and efficiency in your business. For instance, rather than using traditional phones for communication, it is sensible and cost-effective to adopt cloud-based business phone systems for seamless and hassle free communication. This will not only save you money in the budget, but also benefit you in the office. All you need is a working internet connection.
Know Your Revenues
Once you know how much money you pay out monthly to stay in business, you then need to know how much money you make monthly. Or rather, what is your income – the company’s revenue, etc.? Be detailed and leave no stone unturned. This is another number that if misjudged could spell a certain catastrophe for your business.
Be mindful to factor in a bit of slack. This will help stack away a little extra money here and there that could ultimately be used for debt payoff or expansion.
Set Financial Goals
Maybe this includes paying off debts or increasing your savings. Whatever your financial goals, either for the business or personally, you must first determine if you are at a budget shortfall or overage. Meaning: do your expenses exceed your revenues, or do your revenues exceed your expenses. Once you have determined how much you come out on top monthly, or in the hole – you then can accurately set achievable financial goals.
Track Your Progress
Be diligent to carefully input all of your spending throughout the month into your budget. Having to track every penny that you pay out will ultimately cause you to think twice about spending. Therefore, eventually leading to less waste and more savings.
Be realistic as you track your progress for your business’s financial goals. There will be times where you might break the budget or slip up, and that is okay. The important thing is that you get back on track and continue to consistently track your spending vs. earnings right away. Budgeting is an essential part of business ownership that you must implement in order to accurately forecast your future revenues as they relate to the company’s expenses. Doing so is the most effective way to stay on top of your company’s finances and therefore grow your business, should you desire to do so.
If you have some helpful information to share about budgeting, business finances then please share. We would love to hear from you!