Tuesday, August 23, 2016

Managing Your Budget in A Small Business

When it comes to operating a small business, there are two plans that are crucial for maximizing your odds of success. The first is the business plan, which gives you framework to execute and succeed with your strategy. The second (and equally important) plan is the small business budget. It's much more than buying some budget software and thinking that will solve your problems. Creating and managing a budget will give your small business the needed financial discipline in order to survive and thrive in a competitive, ever-changing marketplace.

How To Create and Manage a Small Business Budget
Here is a step by step plan to create a budget for your small business.

Research and Organize Your Revenues and Costs
If you are just starting your business, and do not have previous cost data, research the average revenue and expense data for your industry. These will give you an idea of what your revenue and cost numbers will be, enabling you to create a realistic budget.

If you are already in business, simply organize your existing sales and cost data. When it comes to organizing your data, follow the "keep it simple, silly" or "KISS" principle. Do not create line items for every little expense; instead organize your expenses into categories such as "office supplies", "labor", "marketing", "rent", and other general categories.

Once You Have A Budget, Compare It With Your Actual Sales and Costs
Budget versus actual analysis is crucial in order to utilize your budget and effectively manage your finances. Run this analysis monthly, make a part of your routine. You can't just focus on the day to day operations, effective strategic planning is required for success, and analysis is a component of this planning.

Find Areas of Improvement, and Act Quickly
Once you are maintaining a budget, and running analysis against your actual performance, you will be able to look at the data, determine the reason behind this performance issue, and quickly make change that will increase cash inflows, decrease cash outflows, and materially enhance your profitability.

When It Comes to Your Budget, Flexibility is Key
Do not be too rigid when it comes to sticking to your small business budget. The budget is a tool for keeping effective track of your business performance. If you see any variance in your analysis that is negatively impacting your business, create a plan and act on it, do not dwell on past issues, focus on improvements for the future.

Creating a small business plan may be daunting at first, but, as the months progress, and you become more and more proficient at recording and analyzing your business performance, you will become a better small business owner, and greatly improve your chances of success.