When businesses fail, it’s because they didn’t understand their market, did not market their business properly, or simply were in the wrong field. The tragedy is when a great business fails because it wasn’t able to keep their finances under control. These are the companies who become overwhelmed by their first big order, go under trying to fulfill it, and don’t have a follow-up plan or the capital to keep their operation going. Or, there are those that become too big for their own good and have operating costs that are too high.
While in some cases, budgeting can be a life or death situation, making sound financial decisions will benefit any business and allow them to redirect money into things that will actually help them grow, not just keep the lights on. Here are some essential budgeting tips all small businesses should follow.
Understand Your Industry
Not all businesses are the same, and they all have different needs. For instance, a seasonal business like a souvenir shop or a resort will not have the same staffing needs as a business that runs the same all year long.
This is why you shouldn’t hire the same way. Consider getting temporary workers for the peak season. Consider the type of benefits package you’re going to offer, and how you’re going to be handling things like overtime.
Get a Better Deal from Your Utility Company
There is never a reason to stay with the same utility company for 5-10 years. Your deals are not going to get much better, and you should consider watching what others may have to offer. We suggest you always compare electricity prices between suppliers and don’t be afraid to make the switch. Doing so will allow you to get the advantage of great starter deals and competition.
Plan for the Worst
You literally never know what can happen with business, and this is why you always have to be ready for anything. All businesses need to have some sort of emergency fund set up for a rainy day. This way, you’ll be ready if all of your inventory gets destroyed by a flood or if your only lorry is out of commission. The size of the emergency fund should be adjusted to your business. Cash intensive businesses will need a bigger cushion. The amount can vary between three months to a year of business expenses.
Readjust when Needed
All parts of your budget don’t have to be set in stone, and if you notice that you’re being too tight in some cases or going overboard, you’ll need to make some adjustments. The budget is only a guideline and could change based on your day to day operation. This is why some people will do their budget on a monthly basis, though you can always do so on a quarterly or semi-annual basis if your needs remain roughly the same throughout the whole year.
Get Your Employees In
For some reason, a lot of business owners will think that being secretive about the budget is actually a good thing, but you should keep your employees in the loop to some extent. Doing so will help them understand some of your decisions. Another thing it will do is give them a better understanding of your costs. They will then be more likely to watch and change their habits to find ways to cut costs and benefit the business. If you apply these few simple tips, you will be able to better manage budgeting and keep costs under control. Everything you do makes a difference, so make sure that you get everyone involved and take steps every day to run a more efficient business