As you embark on your small business adventure, create a roadmap to success by putting together a budget. Learning to manage your finances effectively and being prepared to pivot when unforeseen expenses pop up are crucial skills for any business owner. Hone your financial savvy and create a budget for your small business with these tried-and-true tips.
These budgeting guidelines will give you a strong foundation to build your long-term budget. Don’t hesitate to alter your budget to adapt to changing circumstances—look to Pango Financial for actionable business funding strategies.
Lay Out All Your Expenses
What is your business spending money on every month? This step may be more challenging in the first few months of operation, as you’ll probably have many one-time expenses while setting up your office and workflow.
Business expenses often fall under one of three categories: variable expenses, one-time expenses, and fixed costs. Which elements of your business can you expect to spend money on each month?
These expenditures will crop up every month, but you may not spend the same amount every time. Think transportation costs, taxes, office supplies, and inventory.
As stated, the first few months of your business operations will probably be full of one-time expenses. Perhaps you’re buying a piece of equipment you expect to last for several years, or you’re securing a permit to do business in your community.
As the name implies, these expenses will be the same amount each month, so you can plan for them more accurately than the others. If you took out a Small Business Administration (SBA) loan as a business funding solution, those loan repayments are fixed. Make room in your budget to pay these costs every month to avoid going into debt or defaulting on your loan.
Overestimate Your Spending
The key to expanding your budget’s flexibility is assuming your expenses will be higher than they really are. That way, you’ll be prepared for your bills every month, and any money left over will be a welcome surprise.
Think about those variable expenses we discussed earlier. As you pay those bills month after month, you’ll get a rough idea of the range you can expect to spend. Staying prepared for fluctuating expenses will benefit you in the early days and help you avoid unwanted payments.
Tailor Your Budget to Your Industry
Depending on the niche where you’ve built your business, some expenses may be more relevant than others. For example, if you operate a landscaping company, you may not need to devote much of your budget to office supplies. Do you do business in a single office location? You probably won’t need to spend a bundle on transportation costs.
While unexpected costs are part of running a small business, you can reasonably predict a few. You know your industry like the back of your hand—anticipate the expenses you know you’ll pay every month!
Hire an Accountant
While you may have some experience developing your personal budget, business budgeting is often much more complex. If you feel overwhelmed or confused by all the operating costs of your business, seek out the advice of an expert.
Accountants make a career from poring over other people’s budgets. They have a strong foundational knowledge of credits and debits, and their advice can help you avoid unnecessary spending and accruing debts.
An accountant’s expertise will be particularly valuable to you during tax season. If you’ve never filed taxes as a business entity, hire an accountant to guide you through the process.
Track Your Sales Cycle
Stay in touch with your sales team and watch your analytics closely to gain a better understanding of how much money you have available every month. Take advantage of any lulls in the sales cycle to brainstorm new growth strategies or change your marketing tactics. After all, you have to keep revenue coming your way in order to pay monthly expenses and grow your business.
Does your business have an off-season? If you anticipate slower months around the same time every year, make sure you’ve got the cash to stay afloat. Set aside money during your busier periods to keep your business operating after the heavy traffic dies down.
Cut Unnecessary Costs
As you track your spending in the first several months of your business’s operations, observe how those funds are being used. Ask yourself whether the expenditure was necessary; do you need to hold business luncheons every week, or can you transition to once a month? If you own a retail store, pay attention to which items customers are buying and which items are shelf-warmers.
Cutting costs isn’t the only way to make more room in your budget. Have you thought of consolidating your expenses? If you buy any inventory in bulk, ask your supplier for a discount. Got multiple lines of credit with different vendors? Ask them if you can consolidate those debts into a single monthly payment.
Regularly Revisit Your Budget
As your expenditures change during your business operations, your budget will have to change too. Your spending in the first month will look very different from your spending five years down the line. Once you grow accustomed to the rhythm of your sales cycle, you’ll be able to predict budgeting changes more accurately.
Consider holding budget meetings with your staff every month, and revisit your spending habits based on how much profit you’re bringing in. Be prepared to adjust your budget to accommodate larger expenditures and prepare for emergencies.
Are you in the process of creating a budget for your small business? There’s no one-size-fits-all strategy for business budgeting, but these guidelines can help you sketch out a plan. Customize your spending plan to fit the needs of your business, and be ready to implement changes if your budget does not support your goals.
If you’re searching for a financing option that will support your business goals, check out Pango Financial’s funding solutions tool for more information. Secure the startup capital you need to get your business off the ground!