Whether you’re starting your first small business or running an established one, your budget can be your secret weapon. A strong budget is an essential financial tool for any business, and it should be the go-to resource for all your spending decisions.
Here are some tips for creating a budget that will help guide your business.
Set realistic goals
Don’t overshoot with unrealistic goals or targets. Find the balance between a stretch target and what you are realistically likely to accomplish with the resources available to you.
Take into account the environment, competition and the trends driving your customers’ spending habits. If you have an established business, take a close look at what you achieved last year, then estimate the percentage of growth based on changes in brand awareness within the local environment. Are you bringing on additional salespeople or more efficient technology or software to reduce costs? Both strategies might allow you to stretch your target numbers a little further.
Define your expenses
In its simplest form, a budget is a list of expenses and revenues. In order to make a profit, your total expenses must not exceed your total revenue.
Expenses can be classified two different ways: fixed or variable. Fixed expenses are those, like rent and utilities, which will remain relatively constant over time. Variable expenses, on the other hand, can change with your revenue. For example, you will have to spend more on coffee beans and milk to fuel sales as the demand for your coffee grows.
Expect the unexpected
Setting aside some money in a ‘rainy day fund’ is never a bad idea. That way, if your business experiences a sudden turn for the worse, you’ll have the funds to help you stay afloat. Similarly, you can invest in small business insurance, which may help cover your livelihood if something unfortunate like fire or injury occurs.
Another option is to budget conservatively. If you write a budget that assumes your costs will be higher and your revenue will be lower than what you actually expect, you’ll have a buffer to help you weather unforeseeable problems.
Look at your budget regularly
Once you have your foot on the accelerator, it’s easy to keep both eyes focused on the future, but your budget will likely need to be revisited and adjusted over the course of the year. Take some time every month or two to look at your budget and tweak it based on how your business is performing. If you’re exceeding your expectations, it may be time to reinvest a percent of your earnings back into the business to help it grow.
All good budgets rely on strong data. That’s why it’s important to use tools that give you powerful, data-rich reports and analytics to help track your performance. Square Point of Sale users can access an array of useful reporting options with Square Dashboard. The dashboard can also be integrated seamlessly with Xero to sync your point of sales system with your accounting. These tools are designed to help you spend less time stuck in the books and more on doing what you love.