FIVE KEY REASONS WHY BUDGETS ARE VITAL FOR SMALL BUSINESSES
Budgeting can be a dirty word for small businesses, with many owners claiming they don’t have the time or the resources to do it properly. But SME budgets should be relatively quick and easy to set, and the benefits far outweigh any time and money spent.
Helping You Get Started
Even before you get started, you should create your first budget in the form of a business plan, to make sure your idea is financially viable. This should include all sources of projected income, whether this is from sales, contract work or retainers. You then need to offset expenses against this, including staff salaries, running costs such as utility bills, and other overheads such as office equipment and supplies.
An accurate, detailed budget forecast is essential if you are borrowing or taking out a loan to start up your new business. The investor will need to see some figures, and awareness of market trends, before they are persuaded to support your new venture.
Spending Your Profits….
When you are up and running, setting regular budgets are still essential for the good financial health of your business. Audits can show which product lines or areas of your business have been doing well, and so could benefit from further investment.
Budgets also give you a good overall picture of your business, so instead of simply reinvesting your profits, you could pay down some debt early, reward your staff with a pay rise, or put some money aside in reserve.
…and Cutting Back
If your business is not going so well, then a budget can help identify areas where you can cut back. For example, it will show you product lines or areas of business activity which could be discontinued as they have not performed as expected, and there seems to be no prospecting of them improving in the months ahead.
Are there any recurring costs which aren’t bringing any recognisable benefits, such as software subscriptions, and which you wouldn’t miss if you stopped paying them?
If you set out a budget in advance for the year ahead, then you can adjust your costs to smooth out any financial bumps. For example, if you know your utility supplier will be increasing the price of your electricity, consider switching to another company, if this is possible. If not, anticipate spending less on another area of expenditure such as office equipment.
This kind of forward planning enables you to anticipate problems ahead of time before they become major issues. Remember that your small business will operate on much tighter margins than a large multinational, so errors in forecasting sales and expenditure will have a much larger knock-on effect.
Relieving the Pressure
As the old saying has it, a problem shared is a problem halved, so don’t be afraid to share the results of your budgeting with your staff. This means they can appreciate why certain decisions like sales targets have been set, and for what reasons.
Putting everything down on paper also helps you as a business owner by crystallising the issues your company faces. Be prepared to ask for outside help from an accountant or small business adviser, who may be able to help you. Many of these are specialists in your company’s field.