Friday 04 April, 2014
One of the major challenges of running your own business is budgeting. How do you get the money to work out perfectly each month? It’s a huge challenge that we all have to deal with and every business owner has their own way, but here are a few basic tips for successfully budgeting for your business.
First of all, take a deep breath and realize that you won’t get it right the first time. Or probably the second, third or fourth. Budgeting is always a case of trial and error and hammering out your system until it finally works for you.
Three Types of Expenses
Separate your expenses into three categories – fixed, variable and semi-variable. Fixed expenses are things that never change from month to month. Examples would be rent, leased items and insurance. These are the easiest to budget since they don’t change.
Then, consider your flexible expenses. These are expenses that vary according to sales volume like raw materials and shipping.
Finally, there is one more category to consider, semi-variable expenses. These can be adjusted depending on the volume of business but aren’t directly related to it. Examples would be your advertising budget and salaries for your employees.
Considering Major Expenses
You should not only forecast expenses money by month, but also major expenses you’ll have to pay in the future. It’s hard to pay major expenses all at once, so you need to plan ahead for them. For example, you may need a software program that sets you back a couple thousand dollars. Put expenses like this on your calendar so you can prepare. The same goes for taxes.
Pad Your Expenses
When estimating your expenses, pad them. Things always cost more than expected, so by padding your expenses, you allow for enough elbow room in case something costs more. Double your advertising and marketing budget and triple your legal and licensing expenses. Save whatever extra you don’t use and you’ll be glad you have it when the time comes that you need it.
Cut the Clutter
Most businesses still do the majority of their finances on paper but this leads to a great deal of clutter, as well as the logistical difficulties of filing paperwork so that you can easily find it. A good way to cut down on clutter is to scan all documentation and save it digitally. This makes it easy not only to store and retrieve but also to show potential lenders or others who need to see your finances.
Budgeting is an important part of every business’s operation. Take it seriously and be diligent in recording everything so that you don’t fall behind. Consider it the most important thing you do in your daily business operations because in many ways it is.