Budgeting Tips for Small Businesses

If you own a small business, you know how quickly costs can get out of control. This is especially true if you don’t have a set budget. Whether you have a seasoned accounting department or you handle your company’s finances yourself, these are a few budgeting tips that may help you.

Calculate Your Costs

Your first step in creating a budget is to calculate your fixed costs. These include your rent or mortgage, supplies, debt payments, asset depreciation, insurance, taxes, and payroll. These costs are relatively stable and are typically charged on a weekly or monthly basis.

You also have variable costs in your business. These may include equipment maintenance or replacements, marketing, utilities, office supplies, your salary, and other professional development initiatives. These costs can be reduced when you experience lower sales or increased during profitable months.

Calculate Your Revenue

Your next step is to figure out your daily, monthly, weekly, and yearly revenue. You should separate this revenue based on income streams initially, but you will combine all your income streams in your final budget. Calculate your revenue for the previous 12-month period. Then, review how your cash flows change over time. Are there months when you earn less? Can you identify why?

Build Your Contingency Fund

If yours is like most companies, you have periods where your sales are lower. During these times, you may need a contingency fund to pay your expenses. You may also have unexpected equipment replacement and other expenses. Therefore, you should build some savings into your budget. Although you may tend to spend more on variable expenses during high-revenue months, be sure to set aside some money for the unexpected.

Get Your Employees Involved

Every employee in your company should be aware of your corporate budget and spending. They may also share ways to reduce expenditures or expand revenues, so get them involved. Your staff needs to be informed about any financial changes you make within the organization, and they should be aware of your short- and long-term goals. They can then find ways to help you achieve these goals.

Build a SWOT Analysis

A SWOT analysis (strengths, weaknesses, opportunities, and threats), you will have a clearer vision of your company’s risks. When you compare this to your revenues and expenses, you can begin to build a plan to mitigate these risks. Legislation, such as increased minimum wage requirements, and other external factors can have a dramatic impact on your financials, including your budget, so stay abreast of these changes.

Through effective accounting practices, you can ensure that you and your employees adhere to your corporate budget.   

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