If you are the owner of a small business (SME), you know only too well that managing the finances is not easy. Failure to do this successfully does not just have an impact on the business, it can also cause SME owners to struggle financially at home. This why it’s so important for any SME owner to develop a budget that works.
It’s also important to remember that a budget is an ongoing tool, not just a paper exercise. Not recognizing this can be the difference between success or failure for the owner of an SME. Creating a budget for a business takes time and effort, but it helps the business to thrive and grow and protects the owner from falling into heavy debt. There are several factors that need to be considered when creating a budget that will work.
Learn as you go
Budgets are not set in stone. Any owner who is first creating a budget for their SME will need to make adjustments over time. Expenses may be too high when compared to revenue. It’s fine to have to make changes, as long as the budget is monitored on an ongoing basis. After the first year of learning, following budgets should be more stable.
It’s best to be conservative
It’s never a good idea to over estimate the amount of revenue and working capital that a business will have. Underestimating makes more sense as it allows for a certain amount of financial leeway. Making mistakes downward has less negative impact than making a mistake upward.
Have cash for an emergency
Business and personal budgets are very similar in this way. It’s always a good idea for an SME to have access to a moderate cash emergency fund. Including an amount in the budget, to set aside for this fund, is a good idea.
Use budgets as a working tool
Budgets are not a chore that simply just needs to be seen to be done. They are a working tool that helps any SME to stay on track financially. It’s important for any SME owner to not shy away from checking budgets every month, even if they suspect the experience will not be pleasant. If overspends are recognized they can be learnt from; helping to protect the future of the business.
Pay attention to cash flow
Cash flow issues can be the death knell of an SME. This is why it’s so important to monitor cash flow and ensure that it remains in the positive. Negative cash flow needs to be addressed straight away. It’s fine to take advantage of short-term loans for SMEs, as long as repayment terms can be complied with, without damaging the business.
Creating and managing a budget that works is essential for any SME owner. It makes the survival and growth of the business more likely. It also helps the owner to pay the bills and survive, outside of the business.