No matter what size a business is; a well-managed budget is vital to it’s success. However, there is extra pressure on small businesses to manage their budget more precisely than larger ones, as back-up funds may be harder to come by. In order to ensure you’re consistently making profit while balancing other expenses, you need to have a concrete and robust budgeting plan.
The topic of money and finances can often seem overwhelming and complicated, but lack of financial planning could cause your business to fail. By taking the time to work out a budget that works for you and your business, or enlisting expert help, you won’t have to spend valuable time stressing about expenses and will have more time to put into your business.
So, how can you manage your budget more effectively?
Budget by department
While your small business might only have two or three departments, it’s just as essential to manage departmental budget as closely as a large corporation with ten departments. Look back to the previous financial year and use this to allocate each department’s budget for the coming year; where did you have leftover budget? Where did you have to dip into other funds? Which departments met their targets?
President of Transworld Data, Mary Shacklett, says, ‘Managing a departmental budget is similar to managing a household budget – in the same way you would budget for a mortgage, bills and socialising, you should budget for each department.’
Look ahead at your entire small business’ calendar for the whole year; what’s going to be expensive? Where can you save money? At this stage, it’s important to not only account for the larger things, such as recruiting new staff or an office renovation, be sure to also include the smaller things; these can soon add up to more than you might expect. Don’t try and overestimate or underestimate your budget, either. By rounding costs up and down, you will either cut yourself short or run out of money; utilise every penny to be as effective as possible.
Prepare for the worst
It’s every business owner’s worst nightmare to get half way through the year and realise you need a large sum of money that hasn’t been prepared for – don’t let it be you! From a large setback, such as losing a client or an employee unexpectedly, to a minor maintenance problem such as a broken fridge in the office, it will be highly beneficial for your SME to have emergency funds to fall back on.
Certified financial planner, Diahann Lassus, advises to always have funds available for unexpected happenings: ‘If you don’t have an emergency fund you could end up increasing your debt, or having to pay late fees.’ To put it simply, failure to prepare will equate to failure to satisfy your customers.
Learn to prioritise
If your small business tends to perform best financially in winter, you’ll know you could have less money coming in during the summer months. By learning to prioritise during these slower months, it will mean you can avoid spending the remainder of the year making up for any financial losses.
But how can you prioritise my expenditures when everything is important?
When you have a vision of a new investment or purchase for your business, it’s hard to put it to one side to prioritise expenses that are a little mundane, but crucial. Ask yourself; will this investment help my business and staff be more efficient or make profit? If the answer is no, then make it a lower priority.
Don’t forget your employees
Research has found that ‘when an employee is rewarded a bonus for doing good work, it will obviously encourage him/her to continue doing quality work‘. As important as it is to make sure your clients and customers are happy, it’s equally as important to ensure your staff are enjoying working for your small business.
You may not yet be in a financial position to give annual bonuses to staff, but you can still help them feel valued within your organisation in other, inexpensive ways. Set aside budget for a Christmas party, a team-building activity or even just cards and presents for employee birthdays; they’ll know how valuable your small business’ budget is so will be hugely appreciative of your efforts.
Creating a budget for your business doesn’t have to be a complicated or overwhelming process. By following some of the tips and advice above, you can ensure that your business runs smoothly whilst feeling prepared for the entire financial year.
Darren Clare is CEO of Stratton Craig.