As a small business owner, you wear many hats — probably too many. One of the most important things you can do, however, is set your company's budget. Budgeting is absolutely essential for determining whether you have the resources to operate, diversify or expand this year.
Now is the time to prepare your budget for next year. If you're reluctant to get started, you're not alone. But you'll be rewarded if you don't procrastinate. Here are five tips to help you prepare this year's budget now.
- Know your industry. If this is your first time or you're still relatively new to budgeting, it's helpful to understand how similar businesses compare. Of course, no other business will be exactly like yours. However, there will be similarities you can use to make informed budgeting decisions. Browse resources for data on small businesses in your area, and review IRS data for an idea of what percentage of your budget will likely be dedicated to different expenses like utilities, rent, marketing and so on.
- Be flexible. Budgets require educated guesswork. You may not bring in as much revenue or see as much growth as you originally predicted. On the flip side, you may bring in more than you anticipated. Understand that a budget will guide you through your spending decisions throughout the year, but be ready to go off script. Leave yourself some wiggle room by making conservative estimates, and have a Plan B ready to handle extra revenue if your year goes better than expected.
- Look for ways to cut costs. No matter how successful your small business, always look for ways to cut costs as you prepare a budget. If money gets tight, cost cutting will help you stay in the black. And if you aren't struggling to balance the books, congratulations! You'll increase profits by reducing unnecessary spending. Take each of your expense lines and look for ways to reduce the impact. Energy efficiency can save you money on utilities, too. And taking advantage of special repayment terms can reduce interest on purchases. Be creative!
- Shop around. If you're expecting to make major purchases in the new year, start shopping around now. For example, if you know you'll need to purchase computer hardware soon, you should gather estimates while you're budgeting. This gives you a clearer expectation of the cost and allows you to budget without taking a shot in the dark. Look at pricing trends, too: Have costs been trending up or down? Should you pad your estimate, just in case?
- Take advantage of free resources. Remember that your budget is the tool you'll use to forecast future income and expenses. Operating without one is dangerous, but so is making a half-hearted attempt to complete one. To make sure you have time to focus on budget specifics, take advantage of one-to-one financial consulting from your nearest MO SBTDC. You might also want to use the many prepared spreadsheet templates and other resources available on the Internet to remind you of what to include in your budget and make calculations.
Contact your nearest MO SBTDC for other great tips to help you budget and manage business finances.
This story was featured in the Jan. 2014 newsletter