Every cent matters when you’re running a small business. Keeping and maintaining a budget is hard work. You’ll need to account for team lunches, hiring new employees, surprise expenses, and everything in between.
Your small business budget should be able to estimate and plan future income and expenses. You can put a budget together with just a pen and paper, a financial planner, or any one of the online budgeting tools.
If you’re pretty good at handling your personal finances, you’re off to a great start. Unexpected expenses come up from time to time, which is why emergency savings accounts are a great idea. But, when you’re running a business and probably have a team depending on you, the stakes are higher for budgeting properly.
Getting off the ground
You’re ready to open up your salon. You’ve been in the industry for the last ten years, and it’s time to strike out on your own. But where do you start? You need to gather information to build a business plan, including the items and expenses necessary to turn your dreams into reality. You’ll need to know what equipment you’ll need, what rent will be, the cost of furniture and fixtures. You’ll need other stylists as well as someone to work the counter. All of these things add up.
Securing a business loan
After the business is open and you’ve poured some personal cash into making the dream a reality, you might still need to take out a business loan. If you’re going the traditional route of working with a bank, they will want to see your books and they’ll also want to look at your business plan and proposed budget.
The budget shows the lender how much you need and what your cash flow will look like in your first three years of business. If your business plan and budget aren’t convincing, there’s a good chance the bank won’t bite.
Planning how you spend
No matter what, you’re going to spend money on your business. Your budget will provide you with information about what you can afford to buy, fix, or pay for any given period as well as inform you on how much you can pay yourself. By establishing a clear line of how much you can spend within the budget every month, you are keeping your business healthy because you’re not eating up all of the profits immediately.
By doing this, you’ll establish a “required profit” margin that shows you how much you need to make to meet your monthly expenses. When you build a required profit margin, you’ll pay all expenses first and then whatever’s left over is considered the bankable profit.
To get your budget rolling, here’s what you’ll need to do:
Plan for your income being low and your expenses being much higher. This way, you’re not getting into tight spots because you assumed the money would roll in. Also, when an unexpected expense pops up, you’re ready for it.
Figure out all of your streams of income including sales, interest, credit card payments, PayPal, Venmo, and checks. Deduct a percentage of expected revenue for late payments and non-payments.
List your required expenses like your phone, electricity, gas, rent, and salaries. These are the expenses that no matter your profit margin, you’re on the hook to pay. If the fixed costs are too close for comfort to your expected income, making all of your payments on time might be an issue. To combat this, you might want to reassess what’s considered a mandatory monthly expense.
Lastly, create columns in a spreadsheet to track your income and expenses. One column should be for actual and budgeted income, and then the other should be for expenses. By doing this, you’ll be able to keep track of what you’re making and spending.
Know your sales cycle
The slow season will happen. Even some of the best companies on earth experience “slow seasons.” Study your sales cycles, use downtime to plan and strategize for busy times, and try new things so you can generate new income in ways you may not have considered in the past. This is another reason you should always overestimate monthly costs. When it gets slow, that unexpected extra cash in will help you out.
All businesses have risk—that’s part of the thrill of striking it out on your own. It’s important that you’re well-aware of what exactly your risks imply, so you can plan for your long and short-term risks effectively.
You must consider that state and federal laws are always changing, the minimum wage is rising with each election, and as you hire employees, you’ll need to start offering benefits. You’ll need to think about where you are located and if there’s a possibility for natural disasters to impact your business. Understanding and catering to all your market factors is crucial for you and your team.
Time is money
Don’t forget to incorporate time into the budget. When you’re dealing with hourly employees, there’s the smart scheduling of projects, making sure deliveries are accounted for, and keeping track of deadlines, so costs don’t overrun. Then there’s also overtime, which can only get more expensive, depending on how long a job goes. Keeping a tight schedule is critically important to keep costs in check.
Your small business budget should be an evolving thing
When you’re creating a small business budget, it’s never a done deal. Budgets change just as your business does. If you’re more successful, you’ll spend more, if you’re dialing things down, your budget will need to reflect that, too. It takes time to learn the nature of the business and how much you’ll need to shift your budget as seasonal trends naturally affect your business and it’s efficiency.
If you’re a small business owner who doesn’t know where to begin with budgeting, paying bills or really anything, give us a shout. We’re here to help small businesses do their best work.