When you start your own business, creating a budget is the first thing you need to do. For a lot of small business owners, the last time they had to make a small business budget was their freshman year accounting class. If you don’t have much financial experience, it can sometimes be hard to make your first budget, especially if you can’t yet project your costs and sales. While making a budget is difficult, it’s also very necessary. Without one, it will be almost impossible for you to keep track of how successful your business really is. You won’t know if you need to cut back or if you can afford to give yourself a pay raise.
If you need help making a budget, there are numerous websites and books that can be extremely helpful. The Small Business Association (SBA) website is one resource that is very informative and super helpful. If you have money to spare, you could also invest in a budgeting program, or even hire someone to do it for you. No matter what, it’s very important for you to review your budget and make sure that you’re staying on track. Read on for a few small-business budgeting tips to ensure financial stability.
Be realistic about your cash flow projection
When you start a new business, it’s impossible to know exactly how successful you will be. Even though you would love to make thousands of dollars in the first month, depending on your business plan, this may or may not be realistic. Aim low when making your first budget. If you make more money than you planned for, it will be a happy surprise, rather than the heartache and financial stress it would be if you come in way under what you had anticipated. If you don’t know how to make this projection, reach out to those who can help you, whether it’s an industry colleague, an old professor, or even some of your target customers. They’ll likely be more than happy to help.
Understand how to do a cost-benefit analysis
If you don’t know how to do one, you can easily Google it and find step-by-step instructions. Basically, a cost-benefit analysis helps you determine whether or not big business decisions are worth it. For example, let’s say that your business sells blankets. For each blanket you sell, you make $10. You’re considering investing in something new for your business, such as an iPad ($500). A cost-benefit analysis will tell you that you would have to sell 50 blankets to pay off that iPad. Is it worth it? Maybe yes, maybe no, but this easy calculation will help you determine whether or not you’re willing to make the purchase.
Never spend all the money you make
This one is probably pretty self-explanatory, but don’t spend everything! It’s just like your parents taught you when you were a child. It’s important to save money and have it in reserve so that it is there when you need it. A savings is great to have if your business doesn’t do well one quarter, but it also might be useful for other reasons. Maybe you’ll have a great new investment opportunity or the chance to expand. Don’t just save it for a rainy day, but for the future of your business.
Don’t budget every dollar
Leave a little leeway- if you budget every last penny, you won’t be ready for the things that you can’t anticipate, like a leaky roof or a broken computer. Make sure that you give yourself a little bit of wiggle-room so that you have extra money when you need it. Remember that old saying: “Plan for the worst but hope for the best”? It’s important to keep this in mind when planning a budget. We, as small business owners, would all love to spend the absolute least amount of money that we can, and sometimes this might be possible, but not always. It’s important for us to be prepared for whatever might come our way.
With these tips in mind, you’re well on your way to making (or tweaking) your budget. It’s also important to keep in mind, however, that your budget shouldn’t stay the same forever. As you gain or get rid of expenses, and as you make more money when your business expands, it’s important to make new budgets that better reflect your financial status. Budgets aren’t one size fits all, so you need to keep yours in check. Its benefits only appear if it’s accurate and useful. If you haven’t looked at yours in a while, today’s the day to get started.