Top 5 Essential Items for Small Business to Budget

It’s budget time again for small business. There’s no need to fear the process. Here are the Top 5 tips for building a great small business budget.

 

  1. PROFIT

If there is only one thing in your budget for next year this should be it!!  It is always a good idea to plan how much profit you want your small business to make, so start here.  After all, this is why most of us went into business.  Once you have a profit figure in mind the next step is to work through how to generate that profit.

 

  1. CASH FLOW

Profit is an essential starting point, but Cash Flow is the lifeblood of all business.  To work out how much Cash Flow you need, write down any debt repayments, tax obligations, equipment upgrades and of course Dividends you want to be paid.

 

  1. SALES

Next you need to consider what Sales you need to generate your Profit and Cash Flow budgets.  Will you introduce new products or services this year?  What price will you charge?  Are there any emerging market trends or competitors that need to be considered?  Now is a great time to think ahead.

 

  1. COST OF SALES

This is an area where many businesses can see a dramatic improvement.  Review your existing supplier arrangements to ensure you are getting the best deal.  Are there alternative suppliers or methods you could adopt to improve your Gross Profit?  Make your goal to identify at least 1% savings in this area.

 

  1. EXPENSES

Now that you have set a budget for Profit, Sales and Cost of Sales the trick is to only spend what’s left on Expenses.  That is,

Sales – Profit – Cost of Sales = Expenses

Yes, we know this is unconventional – but it really works.  You can only spend what is left after paying yourself and your suppliers on Expenses. For more information check out Profit First by Mike Michalowicz here http://profitfirstbook.com.

With your expense target set, the best way to begin is with the largest expense group first.  In most Small Business, wages is the most significant expense. What are the ideal staffing levels for your business? Can smarter processes or technology help to reduce your wages bill?  It is important to consider other expenses but don’t get trapped down in the detail.  Your goal is to set a budget for expenses that is less than the expense target calculated above.

 

Budgeting can be a simple or as complicated as you want it to be.  After all a budget is just a financial plan for the next year.  Remember that any plan is better than no plan when running a small business.

Intellective specialises in Business Planning and more importantly helping our clients to implement their plan into the day to day running of the business.

Call or email us if you want to strengthen your Small Business.