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7 Budgeting Tips for Small Business Owners
  • 17 January 2018
  • Eric Michaels

7 Budgeting Tips for Small Business Owners

It’s important to play an active role in your small business’ finances. Every business plan should include financials, and when the time comes, potential investors will want to see financial projections as well. Managing your business’ budget is vital to help you track business expenses, cash on hand, and how much revenue you’ll need to keep your business running.

Even if you plan to outsource your bookkeeping down the line, you’ll likely have to take on these tasks yourself, at least initially, as you get your business off the ground. Before getting lost in the numbers, check out these seven budgeting tips every small business owner should put into practice.

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1. Know the "musts"

Of course, certain bills and expenses must be paid on a monthly basis in order for your office or brick-and-mortar location to remain open and fully functional. This includes your electricity bill, rent, and employee salaries.

As a best practice, you should prioritize paying off these expenses first each month. In fact, you should ideally have several months of these payments covered in advance so you can rest easy knowing that the foundation of your company is secure. Before you pay anyone else, cover these must-have expenses.

2. Consider your business risks

As a small business owner, you will encounter many exciting opportunities and perhaps, some unexpected roadblocks. It’s important that your budget accounts for potential setbacks. By taking the time to identify your risks, you can be empowered to set a more realistic budget. And don’t forget to take insurance and other types of security costs into account.

3. Have an emergency fund

While having proper insurance coverage is crucial, your budget should also include an emergency fund, just in case. By having this money on hand, you will be better-equipped to handle a scenario in which an essential machine breaks down or some other fiasco threatens to have a negative impact on your revenue. Credit cards may work in the short term, as long as you have enough credit to cover a large purchase, but aren’t always the best long-term solution.

4. Use round numbers

Prices fluctuate in every field, so it can be helpful to round numbers up when you’re preparing your initial budget. Otherwise, a few extra service charges or one rushed shipping order could throw your books into a deficit. By making these minor tweaks, you can ensure that your budget has enough to cover any reasonable shifts in pricing.

5. When you take money out, pay it back

Try to think of your budget as a living, breathing thing. You’ll never be able to forecast ahead with perfect precision, and, as a result, you may have to take money budgeted for one area and use it for something else. In fact, this happens quite often in the early days of a business. The important thing here is to try to pay the money back as soon as possible, so that it is there when you need it again to cover the original project for which these funds were designated.

6. Learn from last month's mistakes

As a small business owner, you will often find that you learn many budgeting lessons on the job. When you’re developing your initial budget, you will have no way of knowing if a supplier's prices will change a bit over the coming year, or if you may need more copies of a particular item to successfully fill orders.

On the budgeting side of things, the only mistake is convincing yourself that this type of unexpected shift will never happen again. Keep these incidents in mind as you move forward. Trial and error should also tell you what is essential and what is not.

7. Update your budget regularly

It may not be an exact science, but every business owner should adapt their budget regularly—possibly every few months—to achieve the highest accuracy possible. Once you know the busy and slow times of your business over the course of a year, this process will become easier. In the beginning, you may have to sweat a little in order to make ends meet. Consider it part of the process of finding your way as an entrepreneur.

These budgeting tips, along with advice and guidance from professionals in the field, can help you get your finances started off on the right foot. If you hope to run a successful business, your budget should be on your mind every day of the year.

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