Budgeting & Financial Projections: Hot Tips
A budget is an extremely important element in the financial area of your business. Budgets help with a variety of tasks, such as giving you a good idea of how much you are spending and if you are exceeding your spending limits in certain areas, and the most important thing: it helps to track the flow and progress of your business. Many budgets can be created, depending on how you run your business. A separate budget can be made for your marketing/promotions area and a separate one for operations and employees. Or, you can have an overall budget as a guideline for your small business.
To begin, you will need to make some sales projections, “guesstimates.” One of the main purposes of the budget will be to set forth the available cash to the business. For beginning businesses, you will need to include any start-up financing that you have already obtained, whether from personal financing, other loans and investments, any selling shares of stock, and any other forms of capital that you obtained for the start-up. After gathering all of the necessary information and have a somewhat realistic forecast of the money you anticipate having available, you should make up a list of potential categories that you believe you will be spending capital on. This can help to determine, realistically, how much you can expect to spend all together. But do remember, most budgets are based on projections and can be considered works in progress, so changes will be made.
Numbers, numbers, numbers.
These have to be established, such as the total amount of money you plan on spending in each category, or a maximum amount on spending that you are not to exceed. This is the time not to guess; make these decisions based on research. Example: For all your advertising and promotions activity, determine which type of advertising/promotional tools will effectively reach your target market, explore your options, and then determine an amount that can benefit you in this category. For instance, can $12,000 be enough to reach your goal in advertising/promotions per month? For a large market, this may not be a reasonable amount, however in a smaller market, it may be just the right amount. And if you are a smaller, more locally based business, you could probably even work with a smaller amount.
Another big part of the budgeting process will be working out how many employees you feel you need to operate your business. You will need to evaluate this exactly and therefore, you need to research the rates of pay for various services and look into what the costs are for benefit packages. Take a good look at workforce statistics in your area/region. You can attract quality employees if you can offer comparable packages. After you have done so, you can then budget the proper amount for salaries. You can also have the option to have contract workers, but again, that has to be figured out in this section of your budget.
Remember to include all overhead expenses, such as rent, taxes (i.e. property), insurances, and any other necessary expenses. Then, you should make a hierarchy list of expenses, or prioritize them, into which has higher precedence over the other. Then work out the amounts of expenses in each category because what you spend in one category in one month may differ from another month. Obviously, rent payments will remain the same, but your marketing costs may differ from month to month. You should try to be conservative when budgeting. Don’t make unrealistic assumptions because it can cost you in the long run. Also, try to give yourself some room when budgeting; don’t cut things too close.
If you have previous budgets for your business, use them! They are probably the best guidelines a business owner can use when making new budgets. From year to year, you will need to make adjustments, but the basic categories of expenses will generally stay the same; usually the only thing that will change will be the numbers. If you are starting, your best bet would be to find similar models that are as close as possible to your business.
Timing is an important factor in your budget…so don’t forget about it. Most business, not all but some, have their “peak” seasons where their revenues are higher than other periods of the year. For example, a peak season for a stationary store would be from about August to late September due to back to school shopping. A swimsuit boutique’s best selling months could vary according to the region of the country: A California swimsuit boutique may have their best revenues from late March through September (and year ‘round if in LA and anywhere south of that), while a New York swimsuit boutique’s best season could be from late April, early May through August.
Set maximums. Make these amounts enough so that they can cover your expenses and make them realistic enough so that you WON’T exceed them. Monitor your budget with a magnifying glass, so to speak. You want to know how much you are spending in each category and if you are reaching your maximum for the category.
Juggling is for clowns. This is an absolute no…unless you absolutely have to. Juggling is never a good idea because you can easily lose track of what goes where. It becomes increasingly difficult to balance and keep track of the budget when you are continuously taking from one category or another and using it for something else.
Be realistic. Your projections should be as real and accurate as possible.
Make things understandable. True, budgets vary from business to business; what’s important is that you clearly understand everything in your budget and make sure that everything is clearly explained. Avoid confusion especially when it comes to your budget. Make sure your accountant understands everything as well; go over it with him/her, or a bookkeeper (if you have one), or whoever else works on your financial statements.
The only time when you should over-budget is in areas where there may be unexpected expenditures. Otherwise, avoid over-budgeting.
There are several programs that can assist small business when budgeting and making financial projections. Visit White Birch Software to see three types of software programs that can help make this process easier A3 Solutions, who also offer great software programs to help with budgeting, forecasting, and business modeling.