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How to create a budget for your small business - Blog

How to create a budget for your small business

Passion and drive are two of the many key ingredients you need to be a successful entrepreneur, but the one thing that can ultimately make or break a business are its finances. If the cash flow of a new, small business is not managed correctly through smart budgeting, the chances are that the business will not make it in the long run.

Passion and drive are two of the many key ingredients you need to be a successful entrepreneur, but the one thing that can ultimately make or break a business are its finances. If the cash flow of a new, small business is not managed correctly through smart budgeting, the chances are that the business will not make it in the long run. The haphazard nature that is very often associated with revenue within a small business makes careful budgeting essential. Creating a workable budget can really help reduce the risks a new business can experience, therefore increasing the chances for success – something every business values. Here are a few ways you can create a sound budget for your business to help ensure its growth and success.

Realistic projections

Part of the budgeting process requires you, as the business owner, to do a little bit of guess work. When creating a sound budget plan, you are required to come up with as realistic a cash flow projection as possible. Initially, this will be based largely on estimates relating to your average revenue and expenses, since without having previous months to look back on, educated guesses will be as good as it gets. Of course, the estimates will be based on research and calculations, but only time will tell whether or not they are more or less accurate. When working out projections, be as realistic as possible and the best thing to do is to underestimate your potential income and overestimate your expenses – that way you cover yourself as much as possible.

Research others like you

As mentioned, there’s a fair amount of research that goes into drawing up a thorough budget for your business. It really helps to look at the common budget plans of other businesses similar to yours to get a glimpse of how they run their finances. This may assist you in making a more informed decision when it comes to mapping out your own budgeting approach. Becoming familiar with the industry standards as well as its common costs will help guide you in creating a budget plan that is more suitable for your business and the industry of which it is a part.

Essential expenses

There are always expenses that cannot be avoided when you’re running your own business – these are known as the “essential expenses”. They include things such as wages, operating costs, taxes and rent – basically all those costs that are constant and unavoidable. Once you list all of your essential expenses, you’ll be able to getter a better idea of the running costs involved in your business. Those are the costs that no matter what, have to be covered on a monthly basis. Knowing what they are will help you to prioritise and budget more thoroughly.

Reduce debt FAST

The sooner you can settle your debts, the sooner you’ll be able to start increasing your revenue. Your goal should be to have as few debts as possible (although this is very difficult right in the beginning when you’re establishing the business) because over time, debt brings more debt. Be smart about the debt you take on because whilst debt is a very real part of running a business, it shouldn’t take up a huge chunk, particularly after the business has already been in existence for a number of years.

Save, save, save

Saving plays an important role in the success and longevity of a business. It’s always a good idea to try and spend less than you make so as to be able to accumulate funds that you can use for those unexpected rainy days. When business is booming, there can be a tendency to over spend. It’s rather best to spend conservatively as much as possible and to make sure there’s adequate savings for those times when extra cash is needed fast.

Creating a sound budget plan takes careful planning, research and thought. It may help to enlist the help of someone familiar with your industry or someone who is knowledgeable about budgeting, particularly if you feel unconfident. Once you have a budget you’re happy with, you can start applying it and hopefully start to reap the rewards as you watch your business grow.

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