Whether you're in the early phases of starting your businesses or have an existing business but hate taking the time to make accurate financial projections, many small business owners have never tackled the budgeting process, or at least not to the extent they should. Budgeting should be a priority, a high priority in fact. It's a part of your financial road map and guides your saving and spending habits.
Budgets are important for many reasons. They serve as a reference point to guide your business management strategies. They lend a sense of reality to your conceptual business ideas and help you set realistic goals for the future. One particularly notable reason why budgets are important is their appeal to potential investors and lenders. Detailed budgets tell them three things:
Well-planned budgets greatly improve your chances of getting funding because they also show credibility. In a tough financial climate businesses should be doing everything they can to increase their chances of receiving financial assistance.
If you have an existing business but haven't yet gotten detailed with your budgeting, then go back and analyze your past finances. On a spreadsheet account for employee salaries and wages, building and landscape maintenance and everything in between. Layout all of your recurring costs for a certain period of time (one month, six months, one year) and add them up. Then look at what you made in revenue during that period of time. If you spent more than you made, then you'll need to cut back on expenses. If you made more than you spent, then maybe you can look into investing that money back into your business. It's really just a matter of taking the time to account for everything.
The hard part comes when you're planning to grow your business and need to account for future expenses that may still be unknown. In such cases there is no magic formula to coming up with the correct figures. All you can do is make the most accurate projection you can with the information you have at hand. Again, be sure to account for everything. If you?re planning on hiring more employees, consider not only their salary and wages, but also their recruitment and training costs.
If you're in startup mode and you're creating a budget for the first time, start with some digging. You're going into this process blind, with little to base your projections on, so the best thing you can do is look at recent trends within your industry and location. Are companies like your's costing a ton of money to get off the ground? Are businesses in your area thriving and also showing signs of future prosperity? One way to figure these kinds of things out is to simply talk to the people in charge of these businesses. Ask them all kinds of questions about where their money is being spent and how much is coming in. Then talk to suppliers, distributors, retailers, anyone who can help you get a grasp on the financial situations of businesses in your industry and location. Once you've done that, it all becomes a matter of ?guesstimation.? Take what you've learned from your research and calculate what you expect to make and how much you expect it to cost. Remember that even though you''ll want to follow your budget as accurately as possible, it's still just a guide. You can always tweak it later on to meet your needs.
Whether your business has been in existence for a while or has yet to open its doors, here are several tips for anyone creating a budget.
