Many businesses use budgeting as a management tool for the future. Plenty of others see budgeting as a distraction from living in the moment. This is because thoughtful budgeting results from thoughtful discussions and helps turn expectations into realities. A business can’t fail to prepare an annual budget then sit and wonder why reality doesn’t meet their expectations. When happens, it’s time to take a second look at the benefits of small business budgeting. The best time to do this is in the beginning of the year. As they do so, there are some basic small business budgeting principles business owners should remember.
Determine Where Money Is Spent
Tweak Your Biz says the first thing the business needs to do is determine where they need to spend money. The owner can do this by gathering and sorting through information – starting with checking and savings accounts. Make sure to add up all fixed and variable costs (e.g. sales commissions, direct labor costs, cost of raw materials used in production, utility costs). Remember to include recurring expenses too – including things like insurance, rent, taxes, wages, and depreciation of equipment, interest on money that’s been borrowed, building maintenance costs, office salaries, and office expenses. The owner will want to sort these by month and total them for the year too. Remember that a lot of these costs can easily be scaled up or down depending on the state of the business, but the number that’s left after you determine these costs is what your actual profit is. When you notice that your business is doing better than you forecasted, you can use these extra funds to increase your variable spending so your business can grow faster.
Look at Where the Money Goes
Now you should be able to see why you spent what you did – whether it’s because you have a lease agreement for your rent, loan agreements for borrowed money, you needed to hire a plumber to fix a clogged toilet, or you’ve experienced depreciation for your equipment. These things will change by month and by year, but you also have fixed costs whose prices won’t change as you’re charged the same price each month. Incorporating these into your budget is the easiest part of creating your business budget. You simply need to review your past bank statements to spot your fixed bills and their total cost each month.
It’s important to do your best to factor in one-time purchases – something you’ll want to continually strive to get better at. While some of these items will come up unexpectedly (e.g. buying a laptop to replace the one that crashed), you can usually budget for most of these things months in advance (e.g. a business retreat). This is important because you always want to strive to protect your business from financial burden.
Now you should have a good sense of your business’ finances monthly. You should store this information in a simple spreadsheet that you update monthly and review annually.
Save Money With VOIP
As you look at your budget you’ll want to find ways to save money. One way is to install a VOIP system. Digital says this is great because it lets you roll several individual systems and tools into one single communication hub. Besides replacing your traditional phone system, you can also replace your fax machine (send and receive them via email now), SMS (send text messages directly from your VOIP account), and online conferencing software (easily add multiple people to a call).
By using your business’ Internet connection to transmit your calls your business becomes more efficient since you won’t be using multiple services. There are also several other benefits to VOIP that can save your company money, including:
- VoIP eliminates the unnecessary cost of having a traditional phone line since it uses your business’s Internet connection. This is great since most telecommunication providers try to bundle telephone services with other services that you really don’t want or need. Of course, you’ll need a good internet connection to guarantee that your VoIP system experiences minimal operational issues. This is why you should contact them before implementing major changes to your IT infrastructure – especially one like VoIP.
- VoIP is flexible so you don’t have to worry about intensive cabling when you add new users to your organization’s network. This is something that grows increasingly problematic as the amount of technology you use grows because the amount of space you have doesn’t necessarily grow along with it. When this happens, you end up with a complex network infrastructure that makes it difficult to effectively optimize operations, especially when your business is growing. You don’t have to worry about this with VoIP though because this system makes it much easier to provide new technology without all the complex cables since all you must do is make sure you have a steady Internet connection and enough bandwidth not to strain your network.
Pulling it all Together
As a business owner works to pull the different parts of their budget together, there are a few key areas they won’t want to overlook. These include:
- Income sources including hourly earnings, product sales, investment income, loans, and savings
- Fixed costs including your rent or mortgage, utilities, salaries, internet, government and bank fees, cell phone, website hosting, accounting services, legal services, and insurance
- Variable expenses including raw materials, contractor wages, commissions, advertising and marketing, and transportation
- One-time expenses including things like your computer, furniture, software, office supplies, and gifts
Knowing the costs of all these things will help determine what is needed to sell to make a profit and grow the business. To do this you’ll need to look at your various products or services and realistically assess how much of each of these things you want to sell and at what price. Compare this to your expense forecast and hopefully your sales and profits forecast will be greater than your expenses forecast.