Budgeting for your small business has never been more critical or, fortunately, easier! With companies across every industry and around the world tightening their budgets and crunch the numbers, it’s good to know your business is not alone. Here we will outline some tricks and tools that can make the process more efficient and cost-saving for business owners.
Here are 6 ways to keep your small business on budget
1. Know your risks and guarantees
It’s true that the novel Coronavirus forced many businesses to slash their budgets and cut spending. However, business risks aren’t limited to global emergencies. There are dozens of factors that can have an impact on your monthly revenue. Things like changes in the minimum wage and health insurance policies can take a sizable, unexpected chunk out of your finances.
Making a monthly list of your guaranteed income and projected financial risks is a great way to get ahead of many potential pitfalls and issues that can strike at the most inopportune of moments.
2. Involve the team
Running a small business means you have to wear a lot of hats. But, it doesn’t mean you have to carry the entire weight of the business squarely on your shoulders. Consider splitting the responsibility for the monthly budget between several, trusted employees. Having multiple sets of eyes on it can eliminate errors and help improve overall spending. For instance, a bartender who helps directly with the budget might be able to tell you that you’re overspending on a certain type of beverage and underspending on more popular drink options. Because they have the front-of-house experience, they know better than anyone what customers are ordering and how much of it they are ordering.
Each month, assign two people to assess and audit your expenses to make sure they align with what the business truly needs. Try to get a variety of perspectives. If you own a small business and are the only person working, take a look at the budget throughout the month. Assess it the first Monday and last Monday of every month (or whatever days you choose) so you have fresh eyes on it. Budgeting shouldn’t be a crunch-time affair. Building it into your weekly or daily list of responsibilities is a great way to get a deeper understanding of your business needs and expenditures.
You can also make it easy on staff by investing in a point of sales (POS) system that has budgeting and financial tracking capabilities. Because staff will likely have experience using a POS system, it will be easy to train them on how to effectively budget for your small business.
3. Overestimate on expenses
Business owners tend to look on the bright side of things, which is a great outlook for everything except the company’s budget. When it comes to budgeting, be ruthless in your expectations, and always overestimate what things will cost. This overestimation doesn’t need to be extreme, but it may be helpful to track vendor price changes and other growing expenses during the year and build those trends into the budget, so you are not caught off guard. Building in a financial buffer can pay off dividends in months where a vendor might increase the price of a necessary item that you purchase in bulk. When you overestimate your costs, you make your budget salvageable should emergencies occur.
4. Calculate time
So many business owners forget that labor hours equate to real dollars for your business. Adding a line item for employee hours into the budget is essential, but so too is adding a line item for your time as the business owner! Calculating what you spend your time on will help inform if you need to hire more positions at the manager level, or if you could streamline your systems and processes to free you up to do more cost-efficient tasks.
5. Project for the whole year
If your business is subjected to slow and face-paced seasons during the year, you’ll want to be extra judicious about your spending in the good months. Slow seasons can become stalled seasons, and you’ll be grateful you didn’t purchase anything unnecessary during the prosperous months for your business. This doesn’t mean you have to stall growth when money gets tight, though! It simply means you need to weigh and consider purchases carefully.
Make a full year’s budget and reevaluate it frequently. This budget would be in addition to your monthly budget. By comparing your annual budget to your monthly budget, you will also be able to be as honest with yourself as possible. How are your monthly projections stacking up against the year? Don’t be afraid to pivot where necessary.
6. Be flexible
As COVID-19 has painfully illustrated, anything can happen to the economy at any time. Budgeting won’t solve every problem a small business may face, but it can help you build scaffolding for your company to grow and prosper, even when times are tough.