Four Things to Consider When Reviewing Your Business Budget
As a small business owner, drafting or reviewing your business’ budget probably isn’t your favourite task – unless you own an accounting firm, perhaps. Crunching the numbers can be tedious, intimidating, or, for some, downright depressing. Regardless, it is absolutely necessary to establish a detailed road map for your business to identify goals for growth and outline your financial plan to get there.
A business budget helps you:
- Identify cash-on-hand
- Track expenses
- Calculate how much revenue is required to grow the business – or simply keep it afloat
- Identify problems so that you can reassess priorities and adjust strategies to get back on track.
There are plenty of resources available to help walk you through the process of creating a business budget for the first time, such as small business financial software or online templates, or you may prefer to consult with an accountant to help get you set up. However, a budget isn’t a one-and-done sort of task. It’s something you will want to refer to at least yearly, if not monthly, and adjust regularly. Here are some helpful tips you should consider when revisiting your budget to ensure your financial roadmap is taking your business where you want it to go.
Identify risks that might affect your bottom line.
Owning a business is inevitably associated with risk. Mitigating risk starts with understanding the different variables involved and effectively anticipating changes or trends.
Defining short- and long-term risk is necessary so that small business owners can create an accurate plan, says Paul Cho, managing director of Headway Capital, a small business credit provider. Cho suggests asking questions, such as: “How will changes in minimum wage or health care requirements impact your workforce? Do you operate in a geography at high risk of a natural disaster? Do you rely heavily on seasonal workers?”
It’s impossible to anticipate all potential variables that could risk your business’ success, but it’s really important to monitor what’s happening internally and externally and think through the potential impact. “Once you've mapped out the threats to productivity, a clearer picture can be built around emergency planning, insurance needs, etc.," explains Cho.
Plan ahead – and carefully – for all large-scale investments.
While it’s important to set aside room within your budget for unexpected business expenses, such as equipment repair, it is equally important to carefully and strategically plan for any upgrades, renovations, or expensive system changes to make sure you have the resources required to maintain day-to-day operations while also investing in the long-term viability and growth of the business.
As Cho explains, "Substantial business changes need to be timed carefully, balancing the risk with the reward and done with a full understanding of the financial landscape you're operating within. An up-to-date budget and data-driven financial projections are important components that help guide when to make large investments in your business."
Take into account your business’ sales cycle .
Most small businesses demonstrate predictive patterns of busy and slow periods throughout the year. Adjusting your budget to reflect seasonal fluctuations is important. While scaling back overall expenses during slower periods may be helpful, you may want to use this time – and some resources – to focus on activities that will help prepare you for busier times ahead.
"There is much to be learned from your sales cycles," says Cho. "Use your downtime to ramp up your marketing efforts while preventing profit generation from screeching to a halt. In order to keep your company thriving and the revenue coming in, you will have to identify how to market to your customers in new and creative ways."
Don’t forget to factor your time into your budget plan.
As the cliché goes, time is money, and it’s no exception when it comes to factoring in how time can have a major impact on a business’ budget. James Ontra, CEO of presentation management company Shufflrr, reminds business owners that, “timing underestimation directly increases costs.” For example, when you underestimate the amount of time required to obtain a client’s approval before taking the next step in a project, “not only do you start to lose time to the delivery schedule, your team also loses momentum as their collective thoughts shift focus to another project,” says Ontra.
Adjusting timelines is as important as setting aside budget funds for unanticipated expenses. "If you believe the project will finish on Friday, promise delivery on Monday," explains Ontra. "So, if you finish on Friday, deliver the work early and become a star. If for some reason time runs over, deliver on Monday and you are still a success."
Incorporating these tips as part of a big picture approach to your small business budget may not make the process any less tedious or more enjoyable, but it will help ensure your budget is more accurate and ultimately more beneficial to the ongoing success of your business.