Bridgett Kidd is an experienced financial professional who serves as Member One’s Vice President of Business Services and Lending. Her financial education series offers tips for making smart decisions when it comes to managing your small business.
If you don’t run your business, your business will run you. Nowhere does this adage prove truer than on your balance sheets. Establishing a budget for your business helps you guard against unexpected setbacks, uncover opportunities to do better and grow at the right times. I’m here with insights on how to get the most benefit out of budgeting.
Q: There are so many variables that can affect a small business’s finances. Where do I even start when establishing a budget?
BK: Every small business – and its owner – is unique, but the core purpose of any business budget is to balance revenue against expenses. You can anticipate future revenue based off of recent business trends. Expenses that you can count on having to pay regularly include cost of goods sold and marketing costs. Your expenses might also include rent if you operate out of a physical storefront or office, and payroll expenses if your business includes employees other than yourself. And of course, you can’t forget to account for taxes. Make it a rule to budget conservatively, which means deliberately underestimating revenue and overestimating expenses.
Q: What if my business is a startup? How can I come up with reasonable estimates for revenue and expenses?
BK: Any assumptions that you make will need to draw on industry standards, particularly in your geographic area. Your local library and the web are both fine places to start. Perhaps the best source of information, however, will be your fellow local business owners. Those who are willing can share valuable insights on revenue and traffic patterns in the area. Look for small business owner networking groups in your community for chances to connect and ask questions.
Q: Things are bound to change after I’ve completed the budget. Any suggestions for handling that?
BK: Flexibility is key to success as a small business owner. The truth is, too many business owners create a fancy budget at the beginning of the year, only to set it aside and forget about it. With a small business, especially when you’re just getting started, you should absolutely plan to revisit your budget monthly. It’s a part of the learning process. Adjustments will almost certainly need to be made regularly, and that’s perfectly fine: budgeting should become easier and more accurate as time goes on. During your monthly budget reviews, look for opportunities to cut costs, re-allocate dollars more productively, and even out cash flow for the next month.
Q: How would you recommend planning for downturns?
BK: I’m glad you asked! It’s so important to plan ahead, since smaller businesses are especially vulnerable to financial downturns. Not only that, but you also need to consider whether certain times of year are likely to be slower for your business than others, and if so, budget accordingly. No matter what, you should make it your mission to create a cash emergency fund for your business. You can add that line item to your budget: a monthly deposit into your emergency fund. Consider a business money market account to house your emergency savings, as you’ll benefit from the compounding interest each month.
Q: Are there any situations where you could justify deviating from the budget?
BK: Great question! Of course your budget should steer you away from unnecessary spending. But sometimes, a great opportunity for growth may come up unexpectedly. When that happens, it’s okay to adjust the budget. And, if you don’t have the cash on hand but are confident that the opportunity is a solid one, don’t be afraid to discuss a business loan with a lender you trust. As you’ve probably gathered by now, a business budget is less about being able to control every penny, and more about financial planning for sustainable success.
Watch out for Bridgett Kidd’s column in the next edition of ColorsVA for more useful financial tips for small businesses.
Tags: Finance
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