Are you a small business owner who considers the size of your business as an excuse to ignore budgeting? Most small business owners think that way, but preparing a budget is an important business activity that should not be based on the size of the business.
It becomes easy to predict business profits and to take spending decisions when you plan a budget and stick to it.
So, what does it take to plan a small business budget with success? Some important steps are as below: Focus on Accounting Taking care of accounts is one important thing that contributes towards effective budget planning for small businesses.
This will help you keep an eye on your profits and losses, earnings and expenditures, and other important things.
If you are not capable of accounting of your own, it is a good idea to hire an accountant who would help you with all the aspects of business budget planning.
Therefore, the first step is to ensure that you have the ability to hire a capable professional to make your accounts accurate.
The next step is to calculate the costs that would act as investments to start and operate your business.
These include: Cost of Production If you have a production business, a budget can only be prepared by taking into account the cost of production.
You must understand that for the first year of a business, the cost of production may fluctuate, and thus, you must ensure that the cost of production is precisely calculated to prepare the most effective budget plan.
Cost of Operation Whether or not you have a manufacturing business, you must consider the cost of operation.
This involves the cost of storage, the cost of advertising, and marketing campaigns.
The exact amount of labor commissions and other administrative expenses should be used in the process of planning a budget plan.
Cost of Maintaining Inventory If you have a retail business store, your inventory will consist of finished goods that you sell to end users.
On the other hand, a production business will have raw materials and finished good as its inventory.
In any case, you need a cost to stock and maintain your inventory.
After obtaining the precise values of each of these costs, you can start planning your budget by reserving funds for each of them.
The next important step in budget planning is to consider your cash inflow.
For this, you must consider the net income that you obtain per month from the business.
This can be forecasted by multiplying the number of units of your main products and services you expect to sell with the price of each unit.
Besides, you must consider other sources from which the cash is expected to flow into your business.
The total cash flow must be distributed to facilitate all the aforementioned costs.
Besides, you must understand the importance of saving in a small business budget plan.
Saving is important to pay your liabilities, which include: •Paying Business Taxes: Self-employed people have to file their tax returns on a quarterly basis, so you must learn whether you as a small business owner need to file tax returns quarterly or yearly.
Your budget plan will be affected accordingly, as you would need to decide how much to save per month.
•Business Loans: Your small business budget plan must help you save for repaying the business loans you borrowed from a lender or a family friend.
You must be able to analyze the debt to income ratio; if the same increases, it is an indication that your business is getting riskier every month.
Debt accumulation is one devastating consequence of non-repayment of a loan, and it can be easily avoided with effective budget planning.
Target setting is an important part of small business budget planning.
This because without setting the targets for business profits, you can't set the target for how much cash inflow is required.
Lack of targets in a business budget plan makes it ineffective to maintain the financial stability in a business.
Business budgeting software can help you improve your small business budget plan significantly.
However, the importance of a professional accountant who is familiar with the optimal use of software should not be overlooked.
In fact, hiring an accountant and installing the budgeting software acts as a great combination for your business to follow the right budget plan.
You must carefully select business budgeting software keeping in mind the features you require and suggestions made by the accountant.
Finally, you must review your small business budget plan at the end of every month and make the changes to keep improving in the process of budgeting successfully.
The ultimate goal of a perfect business budget plan should be to keep the earnings, expenses, and savings at the right place so that you achieve expected returns on investments.
It becomes easy to predict business profits and to take spending decisions when you plan a budget and stick to it.
So, what does it take to plan a small business budget with success? Some important steps are as below: Focus on Accounting Taking care of accounts is one important thing that contributes towards effective budget planning for small businesses.
This will help you keep an eye on your profits and losses, earnings and expenditures, and other important things.
If you are not capable of accounting of your own, it is a good idea to hire an accountant who would help you with all the aspects of business budget planning.
Therefore, the first step is to ensure that you have the ability to hire a capable professional to make your accounts accurate.
The next step is to calculate the costs that would act as investments to start and operate your business.
These include: Cost of Production If you have a production business, a budget can only be prepared by taking into account the cost of production.
You must understand that for the first year of a business, the cost of production may fluctuate, and thus, you must ensure that the cost of production is precisely calculated to prepare the most effective budget plan.
Cost of Operation Whether or not you have a manufacturing business, you must consider the cost of operation.
This involves the cost of storage, the cost of advertising, and marketing campaigns.
The exact amount of labor commissions and other administrative expenses should be used in the process of planning a budget plan.
Cost of Maintaining Inventory If you have a retail business store, your inventory will consist of finished goods that you sell to end users.
On the other hand, a production business will have raw materials and finished good as its inventory.
In any case, you need a cost to stock and maintain your inventory.
After obtaining the precise values of each of these costs, you can start planning your budget by reserving funds for each of them.
The next important step in budget planning is to consider your cash inflow.
For this, you must consider the net income that you obtain per month from the business.
This can be forecasted by multiplying the number of units of your main products and services you expect to sell with the price of each unit.
Besides, you must consider other sources from which the cash is expected to flow into your business.
The total cash flow must be distributed to facilitate all the aforementioned costs.
Besides, you must understand the importance of saving in a small business budget plan.
Saving is important to pay your liabilities, which include: •Paying Business Taxes: Self-employed people have to file their tax returns on a quarterly basis, so you must learn whether you as a small business owner need to file tax returns quarterly or yearly.
Your budget plan will be affected accordingly, as you would need to decide how much to save per month.
•Business Loans: Your small business budget plan must help you save for repaying the business loans you borrowed from a lender or a family friend.
You must be able to analyze the debt to income ratio; if the same increases, it is an indication that your business is getting riskier every month.
Debt accumulation is one devastating consequence of non-repayment of a loan, and it can be easily avoided with effective budget planning.
Target setting is an important part of small business budget planning.
This because without setting the targets for business profits, you can't set the target for how much cash inflow is required.
Lack of targets in a business budget plan makes it ineffective to maintain the financial stability in a business.
Business budgeting software can help you improve your small business budget plan significantly.
However, the importance of a professional accountant who is familiar with the optimal use of software should not be overlooked.
In fact, hiring an accountant and installing the budgeting software acts as a great combination for your business to follow the right budget plan.
You must carefully select business budgeting software keeping in mind the features you require and suggestions made by the accountant.
Finally, you must review your small business budget plan at the end of every month and make the changes to keep improving in the process of budgeting successfully.
The ultimate goal of a perfect business budget plan should be to keep the earnings, expenses, and savings at the right place so that you achieve expected returns on investments.