Why budgeting is crucial for a small business

If you’re in charge of an SME, you will know how much difference just a small amount of cash can make within a budget. When you have staff and suppliers to think of when payday comes around, it’s vitally important to keep on top of your business accounting practices.  Even if you outsource your accounts to someone else,employ someone to manage them or keep control yourself, it’s incredibly important to ensure you have good money habits and always know the health of your business finances.

Planning ahead

If your business relies on suppliers to help take on client jobs, you can use your budget to assess how many of these jobs you can take on. Bare in mind that it’s inevitable that some of your clients may not pay you on time for the work you do for them. Having an idea of your monthly finances can also enable you to keep track of the rise of your business year on year and make predictions for upcoming years.

Budgeting isn’t only about the now and before, it’s key for the future too. No matter how big or small, most business owners have plans for expansion, and your finances will no doubt play a part in those plans. Any budget will be not be foolproof, but knowing your money flow will give you the best idea of how you can afford to grow. Knowing your business’s financial state will also allow you to know how high to set goals for your company to comfortably achieve. It will also help you to set salary expectations for your staff.

Creating cutbacks

Making up a budget will also give you a chance to match your outgoings with your incomings. While you can’t always know what your incomings will be, you can always keep on top of what is going out of your business banking accounts. Comparing and changing can sometimes save you hundreds a year and keeping overheads down, keeps your profit up, so check what you pay your suppliers and utility companies and do your research. If you’ve been with your current suppliers for a while, try getting them down on price as you are a loyal customer. The same goes with the rent on your business premises. If rents are gradually creeping up then negotiate with your landlord. If they aren’t prepared to bend, then look for somewhere that makes life easier.

After a few years, once you’ve been working in your business for long enough, you should have a good idea of swings and roundabouts of the industry. For example catering companies will see a rise during the hotter season when people are holding events or weddings, and travel agents will see a boom in the winter months as families start booking trips for the summer months and budgeting will allow you to go with the flow of busy months but still keep your head above water when things are a little quieter.

If there are any big discrepancies and your cash isn’t going your way, it could be time to make some more serious cut backs. If your staff overheads are costing too much or are becoming unattainable it might be time to make some tough decisions. The same goes for staff perks and extras. If you have company cars or big trips away then make sure you’re getting the best deal on them. If they are still eating away at your profit then it’s time to trim the fat and get rid.

Pic credit – The Blue Diamond Gallery, Nick Youngson, CC