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Tips for Building a Better Budget for your Business

AUTHOR: Kevin Jaskolka

Building a budget for your company is like establishing a roadmap to determine where you intend your business to go. Getting numbers on paper that will track cash on hand, expenses and the necessary revenue to keep the business growing is a good way to commit to a concrete plan and can help you foresee future needs and problems that may arise.

You know your trade, and assuming that you’re starting a business, you know it well - however, you might need some tips for building a useful budget for funding operations, expanding and generating income. Here are four tips for building a better budget for your business.

  1. Cover the basics, and cover them well:

Make the estimate for your sales and other revenues as accurate as possible, but lean conservative, Inc. magazine suggested. While any business owner would like to project that their sales will double over the next year, it's best to use last year’s actual sales numbers as a baseline for growth predictions. If you’re starting a new business, do your research - talk to other business owners in the same field as you and do thorough market research.

Next, determine total costs and expenses. These are the figures that determine how much it will cost for your business to earn revenue. While it may not be perfect math - factors will vary, like inflation and price increases - you can divide these costs into three categories:

  • Fixed costs: These expenses stay the same, regardless of your sales. They include insurance, rent and leased furniture and equipment.
  • Variable costs: These correlate with your sales volumes and can include the cost of raw materials used to make your products or complete your services, your inventory, and freight.
  • Semi-variable costs: These can be influenced by the volume of business, and consist of salaries, telecommunications and advertising.

Lastly, to estimate profits, you can subtract your costs from your revenues. The Small Business Administration recommends checking in with accountants, trade associations or bankers to make sure that you have an appropriate profit. Once you’re aware of your profit, you’ll be able to plan ahead - like purchasing new equipment, hiring new staff or moving locations.

  1. Pay attention to your sales cycle

Many businesses have the ebb and flow of busy and slow seasons. It is important to keep those in mind when considering your expenses, as an off-season can impact profits. Consider using slow periods to plan for your sales boom, as Business News Daily suggests. Downtime can be used to ramp up marketing efforts and planning, so you can work toward promoting profit generation. To keep customers coming in when there’s less foot traffic or less demand, you’ll need to plan creative strategies ahead of time. When creating a budget for the year, reserve extra money in the bank - hopefully accumulated from the more busy season - so that you have a safety net if profit generation isn’t what you expected it to be. Keeping the costs down during the off-season and having backup finances will ease stress during this time.

  1. Understand your risks

Most business owners would agree that business ventures, regardless of field, have their own risks. There are countless ways they can financially impact your company. When planning your financial future and getting numbers down on a spreadsheet, it is vital that you keep in mind short- and long-term risk factors - things often out of your control - but that will affect you nonetheless. Things to consider include:

  • Changes in the minimum wage
  • Changes in health care requirements
  • Your geography (weather, risk of national disaster)
  • Reliance on seasonal workers
  • Government regulations
  • Competition in the area

To strategize against risk, consider both external and internal factors. Don’t wait before taking actions against them, either - if your business plan is solid, you’ll have a strategy to deal with them head-on before they become too big to handle. Document any known risks, either that you have firsthand experience dealing within your business or that have affected others in your field. Business tends to be cyclical, so you can expect to see similar risks repeat themselves.

  1. Overestimate your expenses

Owning a business relies on a lot of planning, but also on being able to react to the unexpected. To a degree, you can account for surprises in your business budget. You can’t always determine when something may go over budget - but you can give yourself some necessary wiggle room. To counteract potential disastrous, unexpected expenses, business owners can shield themselves by budgeting slightly over anticipated line-item costs so that there’s a level of preparedness in place if spending goes over.

Creating a thorough budget for your business can help put your mind at ease, and make you more prepared for the next year. Contact Select Funding today to learn more about how short term funding or equipment leasing can help you build a smarter budget.

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