How To Use Budgeting To Achieve Your Business Goals
Financial Planning And Budgeting
Running a small business requires careful financial planning and budgeting. Without a proper budget, it's easy to overspend in some areas while neglecting others. Creating a realistic budget is crucial for small business owners to optimize spending, ensure sufficient cash flow, and reach their business goals.
Doing small business budgeting as an owner can be challenging. Leveraging online accounting services and working with accounting professionals can provide valuable support. Our expertise in accounting and financial planning helps create realistic budgets tailored to your specific business goals and industry. We can collaborate with you on the small business budgeting process to build a financial plan based on your revenue sources, past expenses, and growth objectives.
Track Your Historical Spending
The first step in creating a budget is reviewing what you've spent money on in the past. Gather data on your operating expenses from the last year or two. Break down all business expenditures into categories like payroll, rent, utilities, supplies, marketing, professional services, etc. Tracking this historical data will serve as the framework for your budget.
Look for any seasonal fluctuations or one-time costs as well. For example, you may spend more on marketing around the holidays or replace equipment only every few years. Your budget needs to accommodate irregular expenses so you can plan and save for them.
Estimate Your Upcoming Expenses
Once you know what you typically spend in each category, estimate your expenses for the next 12 months. Think about any changes ahead that could increase or decrease costs. For example, you may expect utility bills to rise or plan to hire additional staff. Consider both fixed and variable expenses that change depending on your sales and operations.
Build in reserve funds or contingencies equivalent to 10-15% of expenses. This provides a cushion for unexpected costs that come up like emergency repairs or slow business periods. It's better to overestimate expenses and have extra funds than underestimate and come up short.
Track Your Revenue Sources
In addition to tracking expenses, you need to document your income sources and projected revenue. Make sure to account for seasonal dips or peaks in sales. Average out your income over 12 months to create a monthly revenue estimate.
Compare your projected income and expenses month-by-month to ensure your cash flow is sufficient. Look for any potential shortfalls where expenses may exceed revenue, and adjust your budget to eliminate deficits.
Work with accounting services professionals to help accurately forecast and track revenue. Online accounting services can provide up-to-date visibility into sales and income trends to inform your budgeting. With clear insights into your revenue sources, you can better align your budget to the ebbs and flows of your business income streams.
Set Budgeting Priorities
With limited resources, small businesses can't afford everything. Setting budget priorities helps allocate funds where they will have the most impact. Start by budgeting for fixed costs and essentials like rent, utilities, employee salaries, and benefits. These expenses keep your doors open. Next, factor in variable operating costs like inventory, supplies, marketing, and professional services. Optimize these to maximize value. For example, target high ROI marketing channels. As you get into discretionary spending, carefully consider which investments will best support your goals and strategic priorities. Budget for those first.
Update and Review Regularly
Your initial budget provides a framework, but you need to revisit and adjust it regularly. Schedule time every month to review income and spending. Check for any deviations from the budget and find places to reallocate extra funds or trim excess costs.
Compare your actual financials to projections and update the budget to reflect reality. Revise your revenue and expense estimates for the remainder of the year. Look out for any new challenges or opportunities not accounted for.
Ongoing budget reviews ensure your plan stays current. Adjust as your small business finances change and evaluate the impact of your financial planning and budgeting decisions on cash flow management.
Budgeting Case Study
Emma started a garden design business two years ago. She loved the creative work but avoided tackling finances. This year, Emma realized she needed to get organized with a formal budget.
She dug up past financial statements and listed all her operating expenses from the last 12 months, splitting them into categories. This included recurring monthly costs like:
Rent and utilities: $1500
Software and web services: $200
Vehicle expenses: $400
Tools and materials: $600
Emma averaged out her project income over the year at $4000/month. Comparing expenses to revenue showed a potential deficit of $150/month.
Using this foundation, Emma built a 12-month budget. She increased the marketing line item to $500/month, given plans to grow and reach new customers. Building in a 10% contingency buffer brought the expenses to equal expected income.
Moving forward, Emma will review the budget monthly and adjust for new projects or costs. Sticking to her budget will help Emma achieve her goals of expanding the business while remaining financially sustainable.
Budgeting is a critical practice for small business owners to master. Following these tips will set you up for success, but it requires discipline. Track expenses, estimate realistic costs, prioritize allocations, and review regularly. With a solid budget in place, you can confidently manage cash flow and make smart financial decisions.
If you need help creating and managing a budget for your small business, the accounting professionals at NSKT Global can assist. Our offers budgeting services tailored to small businesses at every stage of growth. Our experts will collaborate with you to build a realistic budget that aligns with your business goals and cash flow. We also provide ongoing tracking and analysis to keep your budget updated.
For additional best practices on accounting for small businesses, download NSKT Global's free eBook "Accounting Best Practices for Small Business". This handy guide covers topics like outsourced accounting, financial reporting, cash flow management, and more. Pairing the eBook tips with our expert budgeting services will set you on the path to financial success.