Every business owner knows they need to create a budget to help ensure their business stays profitable and in the black. Especially if you are going to seek outside financing, no investor or bank will invest without seeing a budget. Creating a budget assigns every dollar to a category so you know where every dollar goes.
Your business budget will help you project expected income and expenses and cash needs. The number one reason most businesses’ fail is due to poor cash flow management. You have to be able to project you revenue and costs, so you can control expenses before it’s too late.
A good budget is a foundation for any successful business. Here are some tips to help you setup and better manage your business budget.
Take out the Guesswork
No one can be sure of how much revenue they’re going to have in the future, but projecting your income on unrealistic expectations is a recipe for disaster. Instead of using arbitrary numbers, do some research help you budget more accurate figures. To help you determine budget numbers that are a genuine reflection of what is achievable, take look at the revenues of other similar businesses.
If you work with a bank, ask them to send you the average business budget numbers and ratios. They will often give it to you for free. You can also go online and resources that can guide you through the process of preparing projected budget figures for your type of business.
Write Out a Plan
There is a lot to consider when creating a business budget. To help make sure nothing falls through the cracks, write out a financial plan and company policy that covers every business expense within the company. Expenses add up and creating a plan will help you plan for them.
When purchasing a company vehicle or lease, it is easy to forget about additional costs such as fuel, maintenance, and auto insurance. Don’t underestimate costs like servicing or put a nominal figure. Check out the average service costs for a vehicle of the same type and age. This is also a good opportunity for you to make sure you’re getting the best rates on goods and services, like cheap commercial auto insurance.
Don’t be tempted to leave out smaller costs because you think they won’t make that much difference to the overall picture, or you could end up with a budget that doesn’t reflect the true cost of trading. You may only be planning to spend a few hundred dollars on office supplies each year, but these small expenditures can add up quickly.
Create a proper approvals process, along with guidelines on spending limits and policies on expenses. Setting clear procedures will help you and your employees stay within the company’s budget, while also giving you the flexibility to make decisions should there be last-minute changes.
Keep Your Expenses in Check
If you travel for business, airfare and lodging costs will make up the bulk of your expenses. You can save by being more flexible on times and dates of travel, signing up for alerts for price promotions, and sign-up for corporate programs or memberships that give a corporate discount. There are companies that specialize in corporate travel management that may help.
Set up a realistic food, transport, and miscellaneous expenses allowance. Of course, when it comes to taking a prospect or client out for dinner you may want to splurge a little. You can set a dollar limit based on the area of travel per meal, or just give a per diem allowance.
For transport, you should clearly set guidelines for travelers to choose the most cost-effective methods while not sacrificing travel times. This could be reimbursing them for using their own car or taking an Uber from the hotel to meeting location.
Extra charges such as hotel Wi-FI and parking can add up quickly, so allowing for miscellaneous expenses is important for budgeting purposes. After you account for all expenses, you may want to add an additional 10 to 15% in budgeted costs so there are no surprises. You can use different software programs and mobile apps to help keep track of your expenses and send reminders if an employee is getting close to a limit on a budget expense.