5 Tips to Keep Your Small Business Budget on Track
Author: Brandy Kimble, Senior Advisor, Commercial Banking
A recent survey revealed some good news about small businesses. Over half have a documented budget to guide expenditures and help protect liquidity. However, there is bad news as well. As the results indicate, 46% of SMBs are operating without a budget, opening their operation up to serious risks.
The simple truth is, half of businesses will fail within the first 5 years of operation. Thirty-eight percent close their doors because they run out of cash or are unable to raise enough capital.
If this news sounds bleak, don’t fear. Having a formal budget—one that tracks your income and expenditures while also planning for future outlays—can provide you with the insight you need to confidently take on financial challenges and succeed. Here are 5 tips for small business budgeting to help ensure your business remains on the road to success.
1. Have a Plan in Place
If you haven’t written a business plan for your company, you’re operating without a guide. Writing a business plan should be the first step of establishing your business, as it provides an important tool for steering your budget.
In your business plan, you’ll identify factors critical to your success, such as revenue projections and your go-to-market strategy. Frequent reviews will allow you to notice when finances are going off track and provide you with insight to correct your course before revenue losses force you to close your doors.
A business plan also acts as an accountability tool. Entrepreneurs are known for their creativity, an asset that often lures them onto new pathways that could disrupt profitability. By following your business plan, you’re more likely to stay within your budget, an act that will certainly help your overall outcomes.
2. Mind Your Growth
Business growth is a good thing, but when it comes at the expense of profitability, your company may suffer financial consequences that could ultimately lead to business failure. For example, if your company produces a physical product that requires materials purchased overseas, a rapid escalation in demand could force you to pay higher prices in shipping fees to meet your own product deadlines.
Rapid growth can accelerate your costs in other ways as well when operational inefficiencies creep in unnoticed, resulting in higher costs. By having a budget, you’ll be able to more easily identify where you may be going off track and to seek alternative solutions to issues that arise as your company grows.
3. Don’t Be Afraid to Get Help
To save money, business owners often take on myriad tasks that could be hired out. For instance, a recent survey revealed that a quarter of small business owners assumed responsibility for more administrative functions during the COVID-19 pandemic.
In situations like these, business owners often think they are saving money over hiring professionals, but sometimes they’re diverting their time away from essential business functions, allowing profitability to languish while handling tasks that a trained professional could do more quickly and at less of a cost.
Outsourcing tasks can improve internal efficiencies, allowing you to stay on budget more easily.
4. Charge the Right Prices
As your business grows, it’s easy to lose track of pricing. Again, it’s important to consult your business plan, particularly the section on competitive analysis, and make necessary updates to ensure you continue to price your products competitively. Competitive pricing is essential to keep cash flowing and your business profitable.
5. Keep a Pulse on Your Budget
Successfully managing cash flow is a big part of budgeting, so it’s important that you keep your accounting on track. That means double checking numbers and figures, particularly if you are outsourcing financial accounting or payments.
A recent survey revealed that small businesses encounter billing and payroll fraud twice as often as larger organizations, so it pays to employ some of the same checks and balances used by bigger corporations. If you can’t double check your finances personally, be sure to have a trusted resource who can and consider investing in payment technology and fraud tools to help you spot discrepancies.
Budgeting, the Key to Small Business Success
By establishing a formal written budget, you’re developing a financial roadmap for your company. Staying on track will provide your business with added insight into financial performance and make it far more likely that your company will succeed, even during rough spots in the road ahead.