It can be exciting to think of creative new ideas for your business. Coming up with different flavors and scents, packaging, or and finalizing the interior design can be a lot of fun. However, any successful business owner can tell you that the numbers are also very important to survive and thrive. You may wish you didn’t have to worry about bills and receipts, but that’s part and parcel of any entrepreneurship journey.
You wouldn’t want your dream to sink because you didn’t plan well. You may have unique ideas, but you need to be able to afford to put them into action. Some small business owners start off with their savings. Others bring partners or investors on board. If neither of these are an option, you may have to apply for a small business loan. Regardless of where the money is coming from, you need to create a budget to launch and sustain your venture and keep it in the black. Here are a few tips on how to do just that.
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1. Utilize Technology
Just like many people use technology to save time in many tasks like communication and shopping, it can help with bookkeeping too. There are many small business accounting software options out there to help a small business owner create a budget — and stick to it. For those handling complex sales tax needs, it’s wise to explore different tax management options to find what best fits your business. You can review some of the top alternatives to Avalara to ensure you’re choosing the most effective solution for your financial goals. You can plug in assets, goals, and projected revenue, and let technology simplify the process.
Say you are opening an ice cream parlor in the next few months. You may have budgeted an amount for advertising the launch. A budget can tell you how much has been spent already, so you don’t go overboard. Similarly, there may be hot, summer months where the sales may be higher and extreme winter months with lower sales. A budget can help you try to spend less in the off-peak period. If you don’t create or look at a budget, you could be spending blindly, and that can come back and hurt your business if you overspend.
2. Keep an Eye on Costs
Every business has some fixed costs. Even an online business needs to pay for website hosting fees or a storage space for inventory. You pay a monthly fee to the email marketing service and so on. Brick and mortar stores have even more overhead when you consider rent and utilities. Even if a single customer doesn’t enter the store, the lights must still be on, and there should be at least one employee available. Since rent is still due at the end of the month, sales projections should be accurate so you can afford those costs.
Variable costs can fluctuate depending on how much you sell too. If you have a food truck, the amount of ingredients bought will depend on how much is sold in a day or week. Sales will dictate how many takeout containers and bags are needed. These costs can go up or down depending on where your food truck will be parked next. Some locations may yield better sales than others. A budget will help you keep track of both fixed and variable costs, so you don’t go into debt.
3. Have a Safety Net
You may have come up with a very detailed business plan, but there are some things beyond your control. A competitor may open up shop close by and something they offer or do may attract more customers. The COVID-19 pandemic, for instance, threw many budgets and plans out the window when only essential services and businesses were open in many parts of the world. Social distancing and paranoia forced many businesses to close shop.
Always try to keep a contingency budget or rainy-day fund to be prepared. You never know when you may need it. When business is going well, try not to go overboard and take a trip to Europe with the profit. Pay yourself, but also keep a reasonable amount in savings. This can give you peace of mind in case something unpredictable happens. It is only prudent to have some money tucked away in case of sickness, injury, or even natural disasters.
4. Review and Adjust Often
A budget is a great forecasting tool. However, it is not set in stone. It can give you a snapshot of what to expect and plan for. And it can — and should — be changed if things fluctuate. For example, consider if you owned a retail clothing shop. Maybe you hoped your spring clothing line would be a big hit. If it didn’t do as well as you hoped, you will have to pause and pivot. You can tweak projections and learn from your mistakes. Note what went well, and decide what can be improved before launching the summer or fall collection.
The same goes for expenses. At times, vendors raise prices. Sometimes there is a supply chain issue. When you need to source products from alternate suppliers, there can be a difference. Not all change, however, is a bad thing. Sometimes you need a jolt to review suppliers and prices anyway. There could be a new, more competitively priced option in the market. There is the element of convenience of reordering from the same company, but they could also be charging you more since you’re not shopping around.
A budget is a crucial tool to keep you on track. Put in time and effort to create a thorough budget keeping a cushion in case things go wrong. Keep an eye on the numbers and adjust where needed. This can be instrumental for your health — and the health of your company.
