Before earning your money, it’s imperative to have a clear understanding of how you’re going to distribute your funds in the first place. Budgeting is one of those complicated tasks that fragment big goals into bite-size milestones. By having a well-laid-out budget plan, you’ll have a clear understanding of what essential expenses need to have covered before you can start acquiring profit, or at the very least — hit breakeven.
Well-planned budget management will give you a more atomized understanding of the business and what parts of it seem to cause your money to leak. In this article, we’ll look into a set of essential aspects that need to be taken care of when you’re trying to execute your first budget plan. Let’s take a look, shall we?
New businesses need to be especially careful
There is pretty much no business that isn’t dependent on its budget. However, the reality is that businesses that haven’t started turning in any income at all or don’t have an established flow of customers are especially prone to budget-related issues. The main reason for it is the fact that new companies often don’t have enough money to cope with budgetary miscalculations in the first place.
Furthermore, small businesses that have only begun their activity often find it complicated to gauge their budget for the next fiscal year. Very often the number strongly depends on the revenue that a company has generated in the previous fiscal or calendar year. However, new businesses, of course, don’t have this opportunity.
Businesses that have just formally started operating should look into collecting information from their peers and making estimations based on the peculiarities of their industry, niche, and business model.
Tip 1: What goes in a budget plan?
Before we dive into the details, let’s first look at what the structure of a business budget plan should resemble. Bear in mind that this single document, specifically the conclusion you arrive at after finishing it, will define your strategy for the upcoming, or potentially your first year of professional activity as a company. Here are the things your plan must include:
- a description of the desired growth you expect from the business in one year
- a description of the possible changes in your sector, industry, niche, customers, and peers that may affect the business
- your financial expectations from the upcoming year
- a clear, unambiguous description of your KPIs
- possible operational changes
- important data about the central people in your company
- A clear delineation of your expenses + 25% (we’ll touch on that in a second)
This is by no means a complete list but should serve as a very straightforward template.
Tip 2: Slightly exaggerate expenses
Once a company starts operating formally, business owners will generally be baffled by their expenses for a short while. However, this is an essential part of understanding all the financial ins and outs. Furthermore, companies often operate on per project basis with their clients, which means that it’s pretty complicated to calibrate the annual income very precisely.
“Overestimating a company’s expenses helps businesses lower their expectations in the earlier periods and prepare for the worst while trying to outperform the exaggerated expenditure. This strategy acts as a survival tactic that allows young companies to turn income in the first years of their operation.” — James Daily, Financial Writer at TopWritersReview.
Tip 3: Don’t underestimate accounting and bookkeeping
While being very similar, bookkeeping and accounting have a few crucial distinctions that are central to efficient budget management.
Bookkeeping is important because it records your expenses in great detail, which will allow you to detect and alleviate budget bleeds instantly. On the other hand, accounting is there to be able to interpret and analyze your expenses. This is why the two are imperative for successful budget management, especially when it comes to starting a new business.
Accurately tracking and categorizing your expenses will ensure that you’ll have a clearer understanding of how to act, in case your business will start failing.
Tip 4: Look for ways to decrease expenses when possible
Cutting down on expenses is among the best ways you can manage a limited budget. If the people responsible for their branch in the company were to minimize the expenditure in their departments, this would serve as an essential contribution to the budget of the company. Moreover, it’s safe to say that if your company didn’t identify any opportunities for cutting costs, you might not be looking close enough.
Here are a few examples of how a company can limit its expenses on non-essential commodities:
- Make use of technology, to save the precious time of your employees. Pay bills using online payment systems, instead of having them go to a physical office across the city, thus wasting a significant amount of time on things that can otherwise be addressed locally.
- Opt for videoconferences, instead of face-to-face meetings, unless meeting people personally is essential. You may spend the same amount of time in a videoconference and a personal meeting, but the latter does imply longer traveling.
- Avoid printing documents on paper, unless that is imperative.
These are just a few ways how a young business can cut corners on unnecessary expenses.
Tip 5: Concentrate on what matters most
When it comes to managing a company’s budget, it’s not only about cutting down on expenses. A business needs to be able to focus on supplementing particular domains of its activity with the necessary funds. That’s why managing expenses is complicated. If it were to consist only of minimizing costs, it would have been much easier.
Furthermore, it’s also very easy to get caught up in the “cutting on expenses” mindset, which might often lead to underspending funds on your personnel’s needs.
The people working for you must be the centerpiece of your budget management plan. If you feel like the company can afford it — don’t hesitate to invest a little extra to improve your employees’ quality of life.
Allocate a part of your company’s money to have a fund for rewards. The people that choose to spend (at least) a third of their time in your office, making your business work, need to have their issues and interests addressed by their employer. At the end of the day, caring for your employees will only increase worker retention, which will only decrease your recruiting expenses in the long run.
To ensure that you’ll be able to leverage your employees’ talent, you need to make sure that their needs are met. Think of it like a Maslow Pyramid. Yes, basic stuff like water and food is excellent, but can this fuel them to dedicate their intellectual potential fully? Do your workers have everything they need to get the job done impeccably?
Adhering to a budget and managing it is most certainly a very demanding task, especially when you’re trying to get a business off the ground. However, as complicated as it is, efficient management is essential, and a company that “has made it” without a robust outline of its finances is rather a fluke than a regularity.
Invest lots of time and effort in understanding where your company stands and where it needs to cut down some expenses. Being able to find the right answers will bring a considerable amount of stability to your business. However, don’t hesitate to allocate some additional funds to ensure that your employees are content with their workplace. Good luck!