Small business owners often face unique hurdles that ordinary rank-and-file employees don’t—and many of them have to do with overseeing their own business finances. This is where the need for effective budgeting plans comes in.
A good budgeting plan will be crucial in ensuring the financial stability of any business, no matter how small it is. Knowing that, all small- and medium-sized enterprise (SME) and startup owners will eventually face the challenge of drafting up their own budget plans. Moreover, they’ll need to be ready to stick to their budgeting goals amidst factors like unpredictable industry supply and demand and the ever-changing consumer landscape.
To that end, here are six tips to keep your small business’s budget lean, functional, and capable of addressing all your business needs:
1) Regularly Review and Update Your Budget
First, make it a habit to review and update your budget regularly so that you can identify any discrepancies between your business’s projected and actual financial performance. Check it on at least a monthly basis and make all the necessary adjustments to your financial strategies as soon as possible. This will allow your business to stay agile and responsive to your industry’s changing circumstances.
2) Differentiate Between Your Wants and Needs, Business-Wise
Of course, one challenge you’ll experience as a fledgling SME or startup owner is the need to run your business operations on a minimal budget. Unlike big companies, small businesses and startups don’t often start with huge treasuries. That means that they typically won’t have the same space or support to grow their brands quickly.
As such, as a small business owner, you’ll need to learn how to exercise outstanding financial discipline and differentiate between your wants and your business’s needs. This will allow you to set your spending priorities and ensure that you’re allocating your funds to critical business areas.
Some areas you should consider setting aside extra cash for include:
- Business expenses (e.g. rent, payroll, and bills)
- Product research and development
- Employee training
3) Use Technology to Improve Your Financial Management
Today, it’s much easier for small businesses to use cutting-edge financial management technologies to streamline their budgeting processes. Don’t forget that you have a variety of accounting tools to help you get a clear view of your business’s income, expenses, and cash flow.
Try looking into a financial technology or fintech company that offers business banking solutions that are a good fit for your SME or startup. Philippines fintech Maya Business, for example, offers small business banking services that make business banking online easy for up-and-coming organizations. With business banking solutions like Maya Business Deposit, small businesses can complete online business banking transactions quickly and more conveniently and keep abreast of whether they’re meeting their budgeting goals. Use tools like Maya’s to manage your finances, generate insightful financial reports, and look for gaps in your business’s financial health.
4) Negotiate with Your Suppliers and Service Providers
Another good way to optimize your business budget is to negotiate with your suppliers and service providers when possible. It’s in your best interest to pursue strong relationships with your partners so that you can get a better chance of scoring discounts and other favorable terms that can lead to significant cost savings.
To make the most of these deals, try buying your materials wholesale or in bulk so that you can get significant discounts on shipping costs. You should also consider establishing long-term contracts with your partners to get better rates in return for your business loyalty.
5) Build a Contingency Fund
Somewhere along the line, your small business might run into unexpected problems and emergencies. If you aren’t ready to handle them, they may cause devastating disruptions to your business operations and make a huge dent on your cash flow.
The best recourse is to keep a contingency fund. This fund can save your business from falling into the red or even closing during hard times because it can serve as a buffer for your financial stability and security.
Build a dependable contingency fund by setting aside a certain portion of your revenue into it on a regular basis. Eventually, it may yield enough to cover the cost of damages caused by economic downturns, water and fire damage, data breaches, or product recalls. You’ll also have greater peace of mind as a business owner, knowing that you’re prepared to navigate through tough times.
6) Invest in Financial Literacy
Lastly, even if entrepreneurship is your forte, it would be good to invest in your financial literacy. Explore financial literacy workshops, seminars, or online courses you can take. Doing so can help you master important financial concepts and budget planning practices, as well as make you more competitive.
After upskilling yourself in financial literacy, you’ll also become more confident in your financial decision-making and be better equipped to improve your business’s financial performance. It may start with something simple, like learning how to craft a clearer and more organized budget, but it will do a lot for your financial acumen as a small business or startup owner.
In summary, effective budget planning is just one of the many responsibilities you’ll have to stay on top of as a business owner. But don’t neglect to give this aspect of running your business the attention it deserves. A lean and well-managed budget will help you launch your business on the right foot—and keep it operational for years to come.