Two Essential Budgets for Small Businesses

A small business owner must take affirmative steps to protect the company assets. Of the several types of financial controls used by small businesses, these two budgets represent the minimum oversight required of all owners. Anything less and you are putting your business at risk of exceeding your financial limits. This can do serious damage to your firm. These budgets should also serve to reassure owners that they are on the right financial path.

Income and Expense Budget

You begin by estimating monthly income for the next 12 months. Sure it’s only a guess, but it should be an informed one, neither optimistic nor pessimistic. Your spreadsheet should layout your monthly estimates in one column, leaving the next two columns empty for now – they will list actual income and the difference between your estimated and actual income, respectively. You now can tell at a glance whether your revenue expectations are being fulfilled.

Set up your expense columns in the same way.

The best case scenario is to have very small figures in you difference columns, as this would signify a good ability to realistically project your company finances. It’s nice to have a surplus of income and lower-than-expected expenses, but if you get that result every month, go back and re-estimate – it’s best to be accurate.

You will quickly spot whether you are spending too much for the income you earn. This information is priceless, and we’ll discuss ways to utilize it in upcoming blogs.

Cash Flow Budget

If you have employees, the last thing you want to tell them is that the payroll will be delayed due to a cash crunch. If it happens repeatedly, this can cause all sorts of problems, from lowered morale to attempts at organizing a union.

Your cash flow budget should be set up for weekly tracking of cash. Start by examining your regular cash commitments – payroll, rent, utilities, loan interest and all other expenses. Don’t forget to include the effects of holidays on your cash flow.

A rolling two-month cash flow budget is a great place to start. You begin by estimating cash income and outflows for the next eight weeks. Then, enter actuals as they become available. After the first four weeks are up, estimate the third month’s cash flow, and continue this way every month.

Do not be discouraged by the fact that your weekly flows are uneven – try your best to smooth them out so that you get an accurate monthly figure. If you see yourself facing an unexpected cash shortage soon enough, you can do something about it – postpone expenses, utilize a revolving credit account, cut working hours, or whatever else is appropriate to your situation.

Read more money saving tips for small businesses here.

 

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Brian Sutter

Brian Sutter

Director of Marketing at Wasp Barcode
Brian Sutter is the Director of Marketing at Wasp, responsible for the development and execution of the company’s marketing strategy. His role encompasses brand management, direct and channel marketing, public relations, advertising, and social media. He also writes and speaks on topics related to helping small business owners grow their business and improve operational efficiency.
Brian Sutter
Brian Sutter