Cash flow is a problem that so many small businesses have that prevents them from being able to grow. When just starting out, it’s easy to get in over your head since there are so many expenses required to get off the ground. But, once the business is going on, cash flow should be less of a problem.
When it continues to be a problem, it is usually because you haven’t properly budgeted. Every successful business has a budget that helps keep them streamlined and operating in a cash positive way. If you are just starting your small business, or are correctly struggling after having been at it for a while then it is the time to get a budget working.
In this article, I will go over the basics to starting a budget that you can stick with to create a successful small business.
Table of Contents
Get financial oversight
Just as you would need to do when making a personal budget, you have to see where it is that your money is going. It is a bit different than personal expenses, however, in one way. You’ll need to figure out what your expenses are and what they bring in for revenue.
For instance, you can use an employee time tracking software that will give you an overview of how much your employee is costing you in terms of salary and benefits, but also what the employee creates in revenue for your company.
This is important because some expenses are not worth cutting if it is bringing a good ROI. Seeing labor costs as high without context could see you decide to cut down on this expense by cutting hours or laying people off but that could then drop revenue.
Many other expenses are the same as payroll so make sure to have total oversight on what the expenses actually mean when you look at the big picture.
Overestimate your expenses
If you can get by during the times when you have high expenses then when they go low you can get ahead. This is because you set yourself up to operate with slim margins and continue to do so when things are going well.
There are always going to be times when things run over budget and deadlines get passed without a completed project. Steeling your business against such occurrences will make sure that you can come out on the other side in good financial shape.
Know your sales cycles
Some businesses are very seasonal and income only comes in during certain times of the year. You have to be able to stretch this income out over the year to make sure that you can manage financially.
Even if your business isn’t seasonal, there will be times of the year when people’s spending habits determine how much money your business will make. Know when these cycles happen so you can plan ahead. You’ll want to avoid taking on any big expenses during this time. And it will give you a plan for the year to do things like surge your marketing efforts at the time when there is less revenue coming in to squeeze as much out as you can.
Create reports
Every month or every quarter, you need to have a report that details how that period went and where there is room for improvement. For instance, if you were to look at the report for payroll alongside a sales report then you will be able to see how your employees are performing and how to bring the lower performers up to speed and make more money.
You can also see where there is some waste that can be trimmed from your expenses if you see too much overlap between departments. This can give you some insight in how to organize the business to streamline your process to save money or add additional revenue.
Shop around
When you have a detailed report with all of your expenses laid out and easy to identify then you can see if you can cut some of those costs by shopping around. It costs nothing to ask for discounts from your purveyors if it looks like you are ordering a high number of goods from them. Or, you can see if there is a provider that can give you a product or service for less than what you are already paying. You can often present the new number to your current provider and ask them to meet or beat the price and avoid having a disruption in service when switching.
