Take some time at the end of the year to out to work on your business’s budget for the coming year. Small business budget planning offers many benefits. For example, it encourages monetary responsibility and helps you foresee cash flow and financing needs, be ready for taxes and other upcoming expenses, identify opportunities for cost-cutting and for growth, and take stock of your company’s overall performance and financial health.
The prospect can seem daunting—especially if you’ve never done it in a thorough way—as there’s a lot to review, project, and consider. But small business budget planning is so important to steering the ship, and it can be a significant factor in whether your businesses thrives or ends up in the red.
Follow these basic steps for small business budget planning to help ensure that things run smoothly and that you’re well positioned to achieve greater success in the coming year.
Also, be sure to review this budget and your financial records at the end of each month in the new year. You need to constantly stay on top of whether your projections and plans are panning out as expected, and whether you’re sticking to the budget you established. Make adjustments as needed.
Successful Small Business Budget Planning
- Review this year’s budget. If you had one, go through your budget for the past year and compare it to your financial records. Pay attention to how well it matches up to the actual revenue and spending your business experienced. This gives you insights that help create a new budget that’s more realistic and accurate.
- Project next year’s income month by month. This is obviously much easier if you have records going back at least a few years. If not, ask some people with comparable businesses in your industry if they can offer any insights. Having realistic income projections is essential to avoiding overspending, and to knowing what funds will be available to invest in your growth.
- Add up your fixed and variable costs. Solid projections of your expenses are necessary to avoid money struggles or even financial crises, and also for understanding how much you’ll have available for investments. Tally the next year’s fixed costs, which include items like rent or mortgage, utilities, payroll, taxes, insurance, certain supplies, service and subscription fees, association membership fees, and so on. If you’re unsure about tax obligations, as a general rule, assume 30 percent of earnings for quarterly tax payments. Do your best to project variable costs, too, which may include things like certain supplies, postage and shipping, commissions, company vehicle fuel and maintenance, etc.
- Plan for one-time and unexpected costs. One of the biggest mistakes in any type of financial planning is overlooking one-time and unforeseen expenses. When small business budget planning, build in room for foreseeable one-time costs (Are you planning an employee appreciation party or retreat? To buy a new appliance or replace furniture for the office?). Also, be reasonably prepared for unexpected expenses, which may occur if a piece of equipment goes down or you suddenly need to hire an additional employee, for example. Unexpected expenses can easily derail a budget if they aren’t taken into consideration.
- Put it all together. Subtract your total costs from your total income on a monthly and annual basis. Hopefully, the results are well into the black. All of the above steps allow a clear picture to emerge that prepares you for expenses in the new year and for smart spending (including how much you spend and when you spend it) on promotions, upgrades, expansions, and other investments in greater success.
