If you look at the successful businesses out there today, you will see that they have one thing in common. They have owners with proper planning and organisational skills.
There is a common misconception among business owners that makes them believe that all they have to do to make money from a business is to turn on their computer and open up shop. Many business owners rush into starting a business venture with this misconception only to figure out that making money from a business is much harder than they thought.
The reason is simple. Poor allocation of resources is one of the primary reasons why businesses do not make money and even fail from the start. This is why it is effective planning and budgeting is essential for companies to thrive.
Business budgeting tips
Understand the Risks and Current Situation of Your Business
First of all, it is crucial to understand that businesses are risky ventures. With every stage passed by a company, a new risk emerges.
So before preparing your budget, ask yourself questions like, “how will change in minimum wage requirements impact my workplace?”
The importance of weighing these risks cannot be overemphasised. They can adversely affect the smooth running of your business. Once you understand the risk situation of your business, plan for them. Include them in your budget. However, if you realise that you are spending more money on your risks than what you put in your savings each month, then go back to the drawing board.
Overestimate your Expenses and reduce costs
This is the first rule of effective budgeting. This is particularly useful for businesses that operate on a project-to-project basis. In most cases, the costs of new projects are different from previous ones. To be on the safe side, budget a bit above the anticipated price of an item.
Sometimes, it may be worth “shopping around” to see if you are getting good value for your spend. How often do you get more than one quote? It’s a good idea to make sure that you are getting good value for your money. Another way of reducing costs, is to ask for a discount. Sometimes, you could potentially save money just by asking or asking your service provider if there are other options to the plan you might be settling for.
Plan Carefully before Spending Large
As stated earlier, businesses are hazardous ventures. Some significant expenses may occur when you do not expect them to. For instance, your vehicle can break down, or equipment may need to be replaced. In most cases, these significant expenses can hit business owners as a surprise. This is why it is important to set aside some money for emergencies such as this. However, in cases when large projects are preplanned, you should be sure of your plan. If you poorly plan projects like this, you may spend a lot more money than what you had planned. For instance, if the renovation of your store would cause it to close for a while, factor in the amount of money that would be lost within this period.
Careful timing and great risk balancing are required when planning business changes like this. The most successful small business owners use basic budgeting principles like the ones mentioned above to organise how money is spent in their business.
Sometimes with becoming too busy trying to offer the “best price” in the market, we forget that we are actually in business to make a profit. It’s important to always bring your products and pricing, and spending back to this measuring point. Is your business making a sufficient profit? Does the time and energy you are spending, balance with the amount of profit you are making? What do your cash reserves look like?
A budget is not a fire-and-forget process. It is something to be used as a guide and a reminder of how your business is tracking. A budget should be reviewed consistently and you should be asking questions like “how are we tracking this month according to our budget?”, “Did we deviate from our budget?”, “How can we achieve better results next month? or next year?”
If you would like help setting up a budget or want to talk more contact SRF Chartered Accountants today