For a small business owner who really doesn’t like dealing with the numbers, the best way to get a handle on the company finances and manage expenses is to know how to create and adhere to a solid budget. When you know the proper framework of a budget, it’s easily-modified to suit your business’ needs on a year-to-year, month-to-month, and even week-to-week basis in some scenarios. Here are some tips on how to face your fears and dive in and tackle a budget.
Know the basics
In the end, a budget is all about balancing the money coming in and the money going out. Of course it’s a bit more complicated than that, but it helps to think about it on these simple terms. You need to know the basics of building a budget if you hope to overcome your aversion to crunching the numbers. The first step is to figure out all of your sources of income. Sales are the main source, of course, but there can be other sources as well (loans, investment dividends, money you put into the business yourself). Next, you’ll want to make a detailed assessment of your business costs - both fixed and variable. The former are all of your expenses that stay the same, for the most part, and that you pay on a regular basis (think rent, utilities, salaries, taxes, and insurance). The latter are flexible costs that change depending on your need for them over time (think materials, travel expenses, and advertising/marketing costs). Any time you can turn a fixed cost into a variable one, you can potentially save money by eliminating wasteful spending. Once you know your basic flow of cash, you can begin to make allowances for other expenses.
Understand that a budget should be both flexible and rigid
How’s that work, exactly? A good budget is one that you can change as the needs of your company change. It’s a good idea to reevaluate your business budget at least once a month and make any necessary adjustments. It’s also rigid in that once you have set a budget for a specific time frame, you must stick to it for it to work. Think about it this way: good budgets are flexible in the long term, but rigid in the short term.
Spend with purpose
Everything you spend money on should lead you somewhere, and you should know exactly what you hope to gain from each dollar spent before you pencil it into the budget. One good example of this is something like marketing costs. Do you know exactly what you hope to get in return from each dollar you spend on marketing? Or have you just assumed it’s a fixed cost? One way to drive yourself crazy is to spend money without knowing why.
Take advantage of bookkeeping and accounting platforms
As The Smarter Way explains, there are several mobile applications that provide high-tech solutions to the expense tracking problem. For example, Expensify uses scanning technology to keep track of business receipts and translate them into spreadsheets that can generate expense reports. Reports are automatically submitted so there’s no danger of forgetting to turn one in, and the likelihood of losing or not including receipts is greatly reduced.
Separate business and personal expenses
Make sure you understand what constitutes a business expense and what should be considered a personal expense, and as Funding Circle recommends, keep separate accounts for each. It can be difficult to track profitability and budget for the future if these two categories get muddled. Some things get tricky, though. As an example, you should consult a tax expert if you’re not sure how to classify a vehicle that you use for business as well as personal reasons.
When it comes to business expenses, things can be complicated. Sometimes it’s in your best interest to connect with professionals who can assist you. Think through your trouble spots and decide where you could use a hand. For crunching numbers, payables, receivables and more, you can hire a professional bookkeeper. If you need better direction for your business, it might be time to check into a freelance business coach. If things are expanding by leaps and bounds, an attorney may need to lend a hand with dotting i’s and crossing t’s. Your situation will dictate where your specific needs are.
Staying on top of business expenses can be a problem because it’s often given lower priority than sales and other factors that help grow your business. But it’s essential if you’re to accurately track how well your business is performing. It’ll pay off in the long run by protecting your profits, and it can keep you out of trouble with Uncle Sam.