Let’s face it: big businesses have some big advantages. They have the advantages money can bring, including budget space for advertising, better equipment, and more employees. Your budget may be straining just to keep normal operations going. Common wisdom says to cut costs, but there may actually be nowhere left to cut. It may actually take a different way of looking at things by seeing exactly where the budgeting problems arise.
This is a problem that can happen in personal budgets, as well. Imagine you have expenses, but those expenses are due at a certain time. Unfortunately, you’re not going to get any revenue until significantly after the due date, incurring fees or worse. You’ll definitely have the money, just not soon enough for those who want it. It’s probably not so difficult to imagine such a scenario, since this is the case with almost everyone.
Part of your financial planning should also include a cash flow statement, before you fall into that spiral. This is more than a budget. It details not only how much money and where it’s going, but when you expect to have the revenue on hand and when you’ll need it for necessary expenses. The only way to keep ahead is through thorough planning.
Many businesses make the mistake of assuming profitability is all that’s necessary. In truth, the exchange of funds and/or goods often takes time. Even when everything is electronic, the actual transfer is not instantaneous, which is why a number of recent payments will read “pending” on your electronic bank statement. What makes this important is that it’s all too easy to spend money that hasn’t exactly been cleared yet, resulting in rejected payments. It can all be avoided with some planning beforehand.
It may be the case that you simply don’t have enough money to run even or at a profit all year. This is especially true in businesses that have a seasonal basis yet must remain open all year long. If this is your situation, it may look difficult to overcome, but it isn’t impossible. In fact, the people who work with you may understand your situation and be willing to accommodate your special circumstances. Talk to everyone involved, including creditors, vendors, landlords, and others who may expect regular payments and see if you can’t make some arrangements in the form of payment terms.
When out of season, it may be a good idea to cut costs then, as much as possible, even if it means selling your old inventory at a loss. Do everything you can to cut overhead during the off-season. You might even have to raise prices. It all depends upon your particular business.
Not Enough Planning
Everyone knows enough to have a budget planned. It’s a good and necessary part of any business. Yet, a simple budget is not quite enough. Most business have many different parts and each of them need to be specifically called out in the budget, so you can see exactly where you’re doing well, and exactly where you need to do a little work to catch up. For instance, it’s easy for overhead costs to sneak beneath notice, even though they’re no less important than the costs you incur for making your product or having your service available. Utilities, rent, and insurance still have to be paid.
Likewise, keep detailed track of production costs. This may not seem like it would be helpful at first glance – you probably already have a good idea of what you’re spending and what you’re taking in. It may be that you can sell a certain item for more, or need to cut the price of something else. You might find you need to focus on promoting something that can really make a difference, or you might have to discontinue a product entirely. Budgeting software with the proper details can help you determine all this, and more.
Remember the Tax Man
This is a big one. Many self-employed people fall into the trap of forgetting to budget for taxes. Or if they don’t forget, they file annually instead of quarterly, which can take a much larger chunk out of the budget than anticipated. The money that goes to the government in income and sales taxes might appear as profit at first, but in truth they don’t belong to you – so make sure you’re not counting them in your budget, at least not as holdings. Always account for your taxes to avoid a possibly fatal over budgeting mistake.
Budgets are always a concern for businesses, no matter their size. One of the benefits to a small business with a correspondingly smaller budget is the ability to more easily find where you can shore things in and make sure your finances are running smoothly before your budget, and difficulties that come with it, become much larger.
Laura O’Donnell writes smart content on behalf of the budgeting software experts at True Sky. As an avid writer and learner, she loves to use her skills for engaging others in important topics in creative and effective ways. When she is not working, she loves meeting new people, traveling, and bringing her Pinterest dreams to life. Find her on LinkedIn.