Publisher: Alyssa Gregory – Posted on 01/06/2014
As a small business owner, you probably wear many hats. But one of the most important things you do is set your company’s budget. Budgeting is essential for determining whether or not you have the resources to operate, expand, and grow in the coming year.
Now is the time to prepare your budget for next year. If you’re reluctant to get started, you’re not alone. But you’ll be rewarded if you don’t procrastinate. We’ve got a few tips to help you prepare next year’s budget now.
Know your industry
If this is your first time or you’re still relatively new to budgeting, it’s helpful to understand how similar businesses compare. Of course, no other business will be exactly like yours. However, there will be similarities you can use to make informed budgeting decisions. You can browse resources at the local library for data on small businesses in your area and review IRS data for an idea what percentage of your budget will likely be dedicated to different expenses like utilities, rent, marketing and so on.
Maintain some flexibility
Budgets require educated guesswork. You may not bring in as much revenue or see as much growth as you originally predicted. On the flip side, you may bring in more than you anticipated. Understand that budgets will guide you through your spending decisions throughout the year, but be ready to go off script. Leave yourself some wiggle room by making conservative estimates, and have a Plan B ready for a profitable way to handle extra revenue if your year goes better than expected.
Look for ways to cut costs
No matter how successful your small business, you should always look for ways to cut costs as you prepare your budget for the new year. If money gets tight, cost cutting will help you stay in the black. And if you aren’t struggling to balance the books? Congratulations! You’ll increase profits by reducing unnecessary spending anyway. Take each of your expense lines and look for ways to reduce the impact. Energy efficiency can save you money on utilities; taking advantage of special repayment terms can reduce interest on purchases. Be creative in your attempts to save.
If you’re expecting to make major purchases in the new year, start shopping around now. For example, if you know you’ll need to purchase computer hardware soon, you should gather estimates now while you’re budgeting. This gives you a clearer expectation of the cost and allows you to budget without taking a shot in the dark. Look at pricing trends for your expenditure. Have costs been trending up or down? Should you pad your estimate, just in case?
Take advantage of free resources
Remember that your budget is the tool you’ll use to forecast future income and expenses. Operating without one is dangerous, but so is making a half-hearted attempt to complete one. To make sure you have time to focus on budget specifics, take advantage of prepared spreadsheet templates and other resources that remind you what to include in your budget as well as make calculations as you go. TheConnect Startup Toolbox: Budgeting provides free worksheets to help you get started.
Alyssa Gregory is a small business consultant, writer, speaker and collaborator who has been helping start and grow small businesses for 13 years. She is the founder of the Small Business Bonfire, a free social, educational and collaborative community for small business owners, and author of the Connect Startup Toolboxes currently available on U.S. Bank Connect.