Money makes the world go ’round
Let’s face it – money makes the business world go ’round. You need money to get your business off the ground, and once it’s established, you also need money to maintain your business and keep it out of the red. Creating an annual budget is a good way to keep your finances in check and make sure they are aligned with the goals you have established for the year. Not having a budget can cause things to go haywire very quickly, and having no plan and little to no cash flow spells curtains for your business and any possibility of turning a profit.
Begin by listing your common expenses
Make a list of your regular expenses like rent, utilities, wages, etc. You can keep track of your expenses using a spreadsheet or a budgeting tool. By having a snapshot of the money you will be shilling out on a regular basis, you can determine how many sales you need in order to at least break even, but preferably turn a sizable profit.
An often overlooked factor
Another important factor to take note of is due dates and what forms of payment are acceptable for your expenses. If the majority of your bills are all clumped around a particular week, you will need to have more cash on hand a few days prior in order to successfully pay off you expenses. Having a positive cash flow is of extreme importance in business. Liquidity allows you fast access to your money whenever you need it, without having to worry about going to through the process of transforming it from an asset into usable cash. Remember, not all expenses can be paid with credit; some require direct payment from a checking account and if that account is bare, utilities and other services begin to shut down and negatively affect your business.
Look at your budget often
Once your budget is made, be sure to review it once a month. Conducting a financial health check will keep you on track and allow you to curb any unnecessary spending. Creating an annual budget is only helpful if you stick to it, and that’s not possible if it never sees the light of day.
Forecast for next year’s budget
If you’ve made your budget and are managing it well, congratulations! But don’t forget to take into account future costs and next year’s budget. For instance, if you know your lease will be increasing next year, you may need to start diverting additional funds into a savings account or increasing sales in order to cover the added cost. Or if it’s time for some maintenance repairs, starting to increase deposits into that segment of your budget in advance will save you the shock of being slapped with a bill later on and then worrying about how to pay it.
Creating an annual budget lets you take charge of your finances and make them work in your favor rather loom ominously over your head. As a business owner, frequent financial transactions are necessary for the health of your business. By tracking your spending and limiting it to an amount that’s optimal for continued success of your business, you increase its staying power and are able to enjoy the fruits of your labor rather than cringing at your bank statements each month.