Small business budgeting, although important, is generally not a favorite task of business owners. A successful business needs money to run and grow. Having a well-planned budget can ensure there is always enough money coming in to keep the business profitable.
Could you use some small business accounting help? Contact our professional Pittsburgh CPAs and let us help you create a successful small business budgeting plan. (412) 931-1617
A solid budget plan helps you determine how much money is needed for necessary expenses to keep the business running so you can start planning for enhancements to grow your company. Although every business is different, there are common items that every business owner has to observe, including rent/leases, payroll, cost of raw materials, taxes, utilities, etc.
These next 5 tips can help you prepare a budget set for success:
Budgeting Tip 1 - Save for Hidden Costs
Most small businesses specialize in something. Whether it’s providing a specific service or selling items to a specific market, you need to know your specialty inside and out. Understand insurance requirements, legal standards, licensing requirements, tax codes, regulatory costs and employee turnover costs. All of these items fall into the “Hidden Cost” category and should be properly accounted for in your small business budget. It’s important to set aside about 20% of your budget or revenue to help these hidden costs which can hinder the success of your business.
Budgeting Tip 2 - Pay Back Debts First
Most business owners take out a loan to start up their operation. These loan payments can often take up a large chunk of monthly budget expenses. Make it a priority to repay your initial loan as quickly as possible. If you can manage it, pay more than just the minimum monthly payment so you can avoid excessive interest charges. The faster you can pay of your loan, the quicker you will be able to free up this portion of your budget so you can allocate it to business growth.
Budgeting Tip 3 - Prepare for Economic Shifts
New small businesses are exceptionally vulnerable to economic downturns. If you have properly budgeted for unexpected financial shifts, your business can remain afloat through a tough economy. Make sure that your budget is flexible and that you can shift money around as necessary and that you have built up a thick financial cushion (at least 6 months of expenses) to help protect your business if the economy drops quickly.
Budgeting Tip 4 - Include a Fair Paycheck for Yourself
Immediate success can make it tempting to spend all of your profit on items that will improve & grow your business or enhance your personal life but it’s important to remember that the current flow of big profits may not last forever. It’s critical to save some of your monthly revenue for the aforementioned financial cushion so budget a fair wage for yourself and remain constant with it.
Budgeting Tip 5 - Save on Unnecessary Costs
Just as you would in your personal life, make sure to always look for the best possible deal. Do your research and shop around. Look at all of your choices, whether it’s for supplies, service providers, or operational costs. The best option may not always be the cheapest but by looking at all of your options, you will be able to cut unnecessary costs that can lead to higher profits.