Budgeting is important for any small business because it enables you to come up with an estimation of what is needed in terms of dollars. Estimating and matching expenses to revenue (real or anticipated) helps small business owners to determine whether they have enough money to fund operations, expand the business and generate income for themselves. Without a budget or a plan, a business runs the risk of spending more money than it is taking in or even not spending enough money towards the growth of the business.
PLANNING THE BUDGET
- Check the industry standards
Do some homework and check your local library for information about the industry, talk to local business owners etc. This will enable you to have a rough idea of the industry, not specifics.
- Make a Spreadsheet
You need to construct a spreadsheet to estimate what total dollar amount and percentage of your revenue will need to be allocated toward raw materials and other costs. This should be done for other expenses too like Rent, Taxes, Insurance etc.
- Look to cut costs
Consider cost cutting, look for items that can be controlled to a large degree. You can also wait to make purchases until the start of a new billing cycle or take full advantage of payment terms offered by suppliers and any creditors.
- Factor in Some Slack
Note that, though you may estimate that you will generate a certain rate of revenue growth, or certain expenses will be fixed/controlled this is not guaranteed to go the way you have planned. Therefore, it is important to factor in some slack and make sure you have more than enough socked away or coming in before expanding the business or taking on new employees.
- Review the Business Periodically
Small businesses should review their businesses more often especially if their businesses are quite volatile.
- Shop around for services/suppliers
Shopping around for suppliers will enable you save money on other services being performed for your business. This can and should be done at various stages, including when purchasing or starting up a business, when setting annual or monthly budgets or during periodic business reviews.
Budgeting remains a key process that business owners use to forecast and then match current and future revenue to expenses. This is to make sure that enough money is available to keep the business up and running, to grow the business, to compete and to ensure that you have enough funds for emergency purposes.