5 Best Budgeting Tips for Small Business Owners

Scaling / July 6, 2017 / Kristie

The fact you’ve already started a small business is proof of your ambition. But the best laid plans can get derailed in a hurry without a good budget in place.

Rest assured that it’s never too late to create and implement a simple budget for your burgeoning company – by making a budget that’s flexible enough to grow into, you’ll be able to focus on business strategy instead of stressing over finances.

Contributing writer to Credit.com, Beth Kotz, has put together the best tips for maximizing your money as a small business entrepreneur.

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Think Big

However much you think you need to run your business, think bigger. According to a 2015 survey by credit provider Headway Capital, nearly one in five businesses was concerned about the impact of unexpected business expenses. Overestimating your finances is especially important if you run a company that takes on irregular work or caters to clients with different demands. By allotting extra funds in your budget for unexpected costs, you’ll save yourself the hassle and embarrassment of being unable to complete a job, fulfill an order or, worse, having to say no to a prospective client.

Track Your Data

In order to see where you should be, you need to know where you’ve been. Track your company’s financial data, including sales, expenses and other costs associated with your line of work. Business accounting software makes it easy to track your data even if you’re not a natural accountant. Choose a product that meets your specific needs, and ask a software expert or friend for help if you need it. Once you understand how your money gets spent, you’ll be better equipped to make strong financial decisions for the future. You’ll also be able to cut unnecessary costs and eliminate waste.

Reassess Often

As with a personal budget, you need to reevaluate your business budget regularly and modify wherever necessary. Businesses grow and evolve over time, which means that your expenses right now may double, triple or multiply even higher as you take on new clients, make bigger sales and offer more services. Your budget should grow and change with you. Set aside some time once a month to look over your expenses and review the data you’ve been tracking. Identify the categories that might need modification.

Build Good Credit

You may not realize this at first, but your business has its own credit score, and it has nothing to do with your own personal credit score. Banks and other lenders use your company’s score to determine how likely you are to pay back loans, so you need to take care of the score just as meticulously as you would your own. Building good credit allows you to take out larger loans at better rates, which you might need to expand or improve your business. As with a personal credit score, your business credit score will be higher if you pay your bills on time; use multiple types of credit responsibly, including loans and business credit cards; and avoid maxing out your credit lines.

Stash Your Cash

As a new business owner, you might be tempted to celebrate with your profits early, but it can take years to turn your business into a well-oiled machine. Set aside funds for a professional rainy day. Emergencies happen even with the best financial planning. If you can, save some money from each sale or payment, and put these extra funds into a high-yield business savings account to accrue interest while you work. Choose a local bank or credit union that you can’t access easily. Ideally, you should save 10 to 20 percent of your income for emergencies, but this isn’t always practical. Save what you can at the outset, and build up your emergency fund with extra income when feasible.

About half of all new businesses fail within the first five years, which means that the odds are stacked against you as a startup. Evaluate your budget frequently, make changes where necessary and implement solutions for keeping your cash flow steady. Don’t be afraid to get help when you need it either. Talking to a financial adviser early will keep you on track as your new business evolves.

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