Growing and maintaining a good operating cash flow as a small business entrepreneur can be a challenge at the best of times. Not knowing what you can or can’t spend can be the ruination of a business in a very short period of time.
Setting a realistic budget can be a daunting process and the question often comes: “Where do I begin.”
I found this great article while searching the web with some simple tips to get you started without complicated jargon. Let me share them with you below:
Understand your market – It goes without saying that the nature of one’s enterprise will dictate where the majority of the dosh is spent. But a decent amount of market research should help a business owner nail down the specifics. “Given that a budget is an allocation of the limited resources you have available, you want to make sure you are applying them in the areas that are going to give you the best return in terms of what you’re doing,” advises Stephen Drew, partner at accountancy and investment management firm Smith & Williamson. ”
So, rather than just picking a number that you feel may be the sort of number you want to spend, you need to ask yourself if it is properly supportable in terms of what market pricing looks like for that particular activity.” Essentially, it is a case of investing in the areas that are proving must lucrative, suggests Sam Cropper, CEO of eco-friendly car service provider Climatecars. “You need to put your assets into what is going to make people come back and buy from you – or buy from you in the first place,” he says. “Everything else you can cover with sticky tape until you can afford to do it properly.”
Keep an eye on the figures – Budgets are naturally subject to change, so a business owner must always have his or her finger on the pulse of the incomings and outgoings. “It’s rare that people get an accurate budget from day one – you can only ever make your best guess,” says Heather Darnell, founder of financial consultancy Back Office Support Solutions (BOSS). “But you really should be revising and re-forecasting based on some real-life data after just a few months.”
The use of an online bookkeeping system can aid this process, she adds. Budgets must take also take full account of the cash flow situation, suggests Drew. “Just because you have revenue in January of x, it doesn’t mean you receive your cash in January – you may not receive it until March and April,” he says. “Understanding that dynamic and what impact that has on cash flow is key, particularly if businesses are budgeting for growth on revenue, because often that will mean they need some sort of working capital to enable them to finance that growth.” Drew explains that a proper budget will encompass the profit & loss account, balance sheet and cash flow.
Account for unexpected costs – Whilst most entrepreneurs will believe they have a decent grasp on what is leaving their business account each month, it is always worth setting aside a little extra capital for the more irregular expenses. “I find that lots of people think they know what their costs of goods are but forget lots of the little bits,” says Darnell. “For instance, you may be manufacturing something and you have worked out your cost for piece but you have forgotten to include the cost of the shipping or duty. The shipping cost can vary dramatically, whether you are shipping by air or by sea.”
I’ve shown you three better budgeting tips here however there are 2 more in the article below. Click the link below to read on…