Budgeting is one of the most important tasks that your business can do. A budget should be carefully considered and should be based on your finances and goals. Done properly, a budget can help you to improve your cash flow and grow your business, but there are some aspects of your business to take into account to help you create an achievable and realistic budget.
When it comes to sales, every month can be different. You will most likely experience ups and downs, particularly if your business relies on the seasons. Your budget should account for these changes so that you can prepare for quieter months. Plans can be made to engage with customers during quieter months, as well as organising staff and tasks to increase productivity during the busier months, for example, encourage staff to take holidays during quiet months to avoid any staffing problems during busy periods. If you are a start-up, then you won’t have any previous knowledge of your monthly sales, only predictions and forecasts. You should forecast as accurately as possible and regularly adjust your budget to ensure that you stay on-track.
Budget your time
Many businesses make the mistake of forgetting to charge for their time. Do you go out to meet the client regularly? Do you put together documents that take all day to create? You should be charging for the time taken to do this. Similarly, you should be accurately estimating the time it will take to complete a job. There’s no point promising the world if you can’t deliver, it can be tempting to take on a big project but if you don’t have the manpower to complete the job then you are unlikely to be paid, and then you will have wasted your time.
Although many businesses accrue some form of debt, it’s never a great thing to have debt hanging over your business. Debt can slowly eat into your cash flow, and if you don’t pay it off quickly, then the interest rates can cause your business some significant problems. If you have any debt then budget for your monthly repayments, you should be aiming to pay off as much as possible every month without causing yourself any problems.
While budgeting for every penny may seem like a good idea, it is unrealistic. You will face some unexpected costs at some point, whether it’s a late payment, machinery breaks down, or a staff member unexpectedly leaves. If possible, try to put some money away to cover these unexpected costs. Late payments can cause a lot of problems with budgets and cash flow, read our tips for getting paid on time.
You can’t create a budget and then forget about it; you need to regularly monitor your budget and see if you are on-track. You may have taken on more business than you forecast for so you will need to adjust your budget. Alternatively, you may have unexpectedly lost a client, and your budget needs to account for the loss. Regularly reviewing your budget will show what’s working and what isn’t.
Budgeting can be difficult, but to be confident that you have a stable cash flow and know that you are in a position to grow it is worth taking the time to create an accurate and realistic budget.