With a new year quickly approaching, it’s time to buckle down and build a budget that will keep your business on track financially. Budgeting can be a complex task, especially as your business grows and demands increase. For those new to business budgeting, here are a few pointers to help you navigate the responsibility.
An important element of a budget that needs to be planned is the projected expenses. What money will be required to help your business run successfully? This includes operating expenses, travel costs, and employee compensation - just to name a few. You’ll then want to consider any costs associated with updating equipment or purchasing new supplies. If your business will need a new computer in the near future, plan for the purchase well in advance to allow enough time to save for it and lock down a deal within a predetermined price range.
In some instances, it may be easy to designate a specific dollar amount to expense categories, but for others it may feel like a wild guess. When unsure, look back at what has been spent in previous years and give the budget a range within that ballpark. When in doubt, estimate high. It’s better to come in under budget than over.
Plan for Price Increases
Price increases are a fact of life, thanks to inflation. The economics behind it are complex, but what you need to know is that there is a natural progression to rising costs. Year to year there is not a major jump in the cost of living, but it is an upward trend as the prices of products and services increase. Are your products and services due for a price increase? A lot goes into evaluating this, but here are a few key things to consider:
- Is it now costing more money to create your product or provide services?
- Have improvements been made to the product/service provided that make it higher in value?
- Are competitors offering a similar product/service at a higher price?
If you are considering making pricing adjustments, be sure to explore how the change will impact your budget moving forward.
Consider Hiring Staff
It can be challenging to divvy up responsibility, but there is value in sharing the workload or getting help with time-consuming tasks. Whether another full-time or part-time employee is needed, you will want to factor those expenses into the budget before the hiring process starts. While the monetary value is always an area of focus when considering additional help, never forget that time is extremely valuable. Perhaps you are finding that you no longer have the bandwidth to focus on the aspects of your business that you enjoy most. Or maybe you realize that another individual’s strengths in a given area could push your business to the next level. Regardless, hiring staff is important and can end up meaning a big change for your budget. As you plan, consider details such as: hourly versus salary pay, employee insurance and benefits, and the level of experience and talent a new position may require.
Leave Some Extra Room in Your Budget
Many small business owners know that there is always some element of unpredictability in running a business. Surprises may lurk in the year ahead - some good and others not-so-good, but when technology fails or last-minute setbacks happen, you can be prepared. Leaving some extra room in your budget for these surprises will make it easier to manage them with more financial confidence and avoid having your budget completely thrown off track. An emergency fund is another great way to be proactive to provide your business with some added cushion for extra expenses.
As you build the budget for your business, remember to look at it as a tool for guidance to promote profitability and financial stability. Use the budget to set realistic business expectations, but leave room for some flexibility – especially if you are less familiar with the process. Lastly, don’t forget to budget for savings. When you make it a priority to set funds aside for long-term growth, your business will be positioned for greater advancement in the long run.
Want to explore ways you can drive business success? Check out our blog post on growing your small business.