Every business owner wants and needs to make money, but no one wants to have to think about money and cash flow every day and all the time.
You need money to keep building and growing your business, and success means you continue to earn back your investment and more in profit. Ideally, however, you don’t want to constantly think about your money and check your account balances every morning to make sure everything is on track.
If you’re thinking about money all the time, when will you find time to innovate new products, expand your marketing, and build relationships with your clients? You can’t run your business if you have to be constantly nervous about spending.
That’s why budgeting is so important. You need a clear plan for how much you’re going to spend and on what. That means also accounting for where all of that money is going to come from.
Budgeting correctly and sticking to your plan can be difficult for any business, especially for a new business still trying to get established. However, it’s essential to start on the right foot and develop good budgeting practices as early as possible.
Why Establishing Good Budgeting Practices is Crucial
You’ve got to establish careful and precise budgeting practices, preferably when you’re in the early stages of starting your new business because having the funding you need is essential to keeping every part of your business in operation.
And if you don’t set intentional practices around your bookkeeping and financial planning, you’re not going to be happy with the practices that end up arising automatically. You need to cultivate smart budgeting habits and keep good financial records if you want to give your company a fighting chance.
Work gets busy. As your small business grows and customers fluctuate over time, you’re not always going to have the time to stop and consider how to handle something. You might come to the deadline for tax filing and not have any spare time at all to go through your records and piece your accounts together.
When the going gets tough, you’re going to do whatever you have to do and take whatever shortcuts you need to take to make things work. If you have solid habits and budgetary foundations to fall back on, you’ll be alright, but if you have to improvise without that, you’re going to set your business on track for mismanagement and failure.
5 Budgeting Tips for New Small Business Owners
Here are a few valuable tips to help you with budgeting as you start to cultivate your practices and habits as a small business owner.
1. Schedule Regular Budget Check-ins
A budget is only as useful as you make it. If you put together a detailed, comprehensive plan for your spending, but then you never look at it again, it hasn’t done you much good. Schedule regular and intentional times to take a moment and review your budget at consistent intervals throughout the year.
Effective small business bookkeeping is about staying in control and fully aware of your finances. Suppose you regularly revisit your budget and assess how your actual spending and expenses compare to your forecast. In that case, you’ll be well-informed and ready to adapt and make the best decisions for your business.
You might have to go over budget sometimes and not look back. That’s OK! Crises happen, and sometimes you have no choice. But when you deviate from your budget, it needs to be a conscious decision.
2. Overestimate your Expenses
One of the biggest challenges in any budget is trying to predict revenue and expenses accurately. Simply put, you never know for sure what the future holds. No budget forecast will ever end up being entirely accurate down to the smallest detail.
The key, however, is to prepare yourself for the budget to go wrong. You don’t want to be walking on a tightrope, falling into danger the second you lean too far in one direction or the other. Overestimate your expenses and give yourself a wider margin of error. Leave yourself some extra space so you’ll be prepared if things don’t go quite as well as you’d like.
3. Don’t Forget to Pay Yourself
Take care as you think through your budgeting, and don’t forget one important line item that’s sometimes easy to forget. Make sure to pay yourself! You may be planning on throwing all of your savings into this business, but that’s not sustainable.
You need to support yourself and anyone else who depends on you, so how much money will you take out of the business for your own expenses? Budget a specific amount of income for yourself as part of your accounting.
This is an important decision to make now instead of simply drawing income out of the business whenever you need it. You have to be very clear about this if you want to run a healthy business and maintain precise and accurate accounts of your finances.
4. Assess Your Risk Comfort Level
There are a lot of decisions to be made while budgeting. How careful and conservative will your estimates and predictions be? How wide do your margins need to be for you to feel comfortable?
Your budget represents a mix of hopes, expectations, and plans for a given period of time. A very constrained budget with limited expenses will keep you from overspending or falling into unexpected traps and not having enough cash flow. However, such a budget may also prevent you from taking advantage of spending opportunities and limiting your growth.
Taking risks isn’t a bad thing in and of itself. You have to spend money and take chances if you want to see a significant return on your investment. Planning your budget requires figuring out exactly how much risk you’re willing to take. You’ve got to be well-informed about the risks you’re taking and what’s at stake, however.
5. Consult with an Accountant When in Doubt
If you don’t feel prepared to make a budget that reflects these concerns, don’t be afraid to seek out some help. Work with an accountant to get guidance on building your first budgets and laying out healthy budgeting and bookkeeping practices to support your growing company.
An accounting professional can offer you an objective perspective to help you predict revenue and expenses, as well as all the expertise you need to plan a comprehensive budget. Later on, having a working relationship with an accountant will also be tremendously helpful when it comes time to calculate small business taxes.
The stakes are high for new business owners trying to build something great. Work with a professional to make sure you’re ready to manage the risks and take advantage of the rewards.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.