Managing your money is essential when running a business, no matter whether you’re a new, small business or an established company – great money management can help you to achieve your goals. Creating a budget is one of the simplest and best ways to manage your funds. Budgeting means that you can make your money go further, prepare for emergencies, and identify any issues so you can correct them before they have an impact. It also allows you to track your loans for small business repayments to give you an idea of how you’re managing your debt. So, if you need some help with your budget, look no further – read on for tips to help you nail it!
Why do you need a budget?
When running a business, it’s essential that you create a budget that you can stick to – but why is this so important? Just like with your personal finances, a budget can help you to keep track of your funds – what you have coming in, and what’s going out in terms of bills. Keeping track of your money means you can keep an eye on your expenditure to ensure you’re not overspending in areas that aren’t necessary. It also means that you can keep track of any debt repayments to see how you’re making progress when it comes to managing the money you’ve borrowed. Creating and sticking to a budget means your business is more likely to thrive and has more chance of surviving through difficult economic times.
Tips for your monthly budget
So, if you run a business and you’ve not yet created a comprehensive budget to help you manage your finances, there are a few factors that you’ll have to consider so you can get the most from it. Here are some tips that can help you create the perfect monthly budget for your company.
Work out fixed costs
Your fixed costs are the bills that you have to pay each month – an amount that doesn’t change. For example, your fixed costs may be your rent payments for the premises that you use, debt repayments or wages. Costs that stay the same month on month are your fixed costs. Add them up so you have an idea of how much these expenses come to – this gives you a bare minimum amount that your revenue will need to cover for your business to survive.
Calculate variable costs
Your variable costs are expenses that could change month on month depending on demand, for example, how much stock you buy, or if you manufacture your own product, how much you need to produce the units required. These costs are more flexible than your fixed costs – and at a push, you may be able to run your business without them, so if you needed to, you could make cuts to your variable expenses.
Think about revenue
When your business starts making money, you’ll need to project your revenue to estimate how much money you think you should be making over the next month or year. This allows you to keep track of where you are, and where you should be. Knowing how much money you’re going to make over the next month means you can budget so you can make a profit. It also means that you can make changes with the help of risk management if your projected revenue is not enough to pay for everything your business needs. Projecting your budget means you can manage your income more easily and align your budget to help you meet your goals.
Create an emergency fund
All budgets, whether that’s for your personal or business finances, should include an emergency fund. You never know what’s just around the corner. You may be faced with an emergency that could see your business unable to operate if you don’t have the funds to resolve the issue, or it could have an impact on your monthly cash flow. Setting a sum of money aside each month into a savings pot means that you can be prepared for all eventualities. You can deal with unexpected expenses, late invoice payments and costly repairs with savings to maintain a healthy cash flow, allowing your business to thrive even through the most challenging times.
