Creating and maintaining budgets can be challenging, as even the smallest, yet unexpected, event can make you and your business feel trapped in a financial maze. But workable budgets can help manage cash flow, keep you in line for meeting organizational goals and also help you maintain control of your business. Knowing where you plan to spend your money will ensure that the funds are going to the correct place at the correct time. Here are five tips that may help you create and abide by your budget:
- Be realistic in projecting cash flows. Conservatism is key. While your business idea or plan may seem flawless, actual results may differ. Underestimating is better than overestimating, especially with budgeting, and it is always better to overachieve past a budget than to come up short.
- List all essential business expenses. This includes expenses such as wages, taxes, rent and so forth. Make sure your list is broad and thorough. Expenses come at a business owner from every angle and are often unexpected if the budgeting process is rushed.
- List non-essential expenses. When cash is tight, limit items such as furniture, groceries, advertising, etc. A realistic overview of business necessities is crucial to staying under budget with regard to expenses. Most often, the initial, quick purchase is not the cheapest. With a little thought, an expense could be reduced or eliminated entirely. Advertising is the perfect example. Alternatives to traditional advertising could be social networking, public speaking or other free/inexpensive methods.
- Account for debt in the budget. Debt can be a dangerous funding tool. It can either jump start the business or be a significant hindrance in the expansion of a business in the form of interest payments. Be sure that you can meet interest payments each month. If not, penalties or additional interest is likely.
- Keep some profits to cover surprise costs and maintain the budget. Starting with a break-even budget or a deficit is dangerous. Even if you are the sole owner and employee, keep some profits for the business and do not distribute them entirely. This way, if sales are below the budgeted amount, there will be a cushion on which to fall.