5 Tips That Will Help You Stick to Your Small Business Budget
Setting and sticking to a budget is one of the most important things you can do as a small business owner. Budgeting is tough and it certainly takes a lot of diligence. That said, anyone is capable of doing it.
As a small business owner there’s also a good chance you’ll be the one managing the accounting. Unlike the larger corporations, you don’t have the luxury yet to simply delegate this work to a finance department. To help you out, we’ve compiled a list of five practical tips that will help you stick to your small business budget:
If you aren’t realistic with your numbers it’s close to impossible to stick to your budget. The difficulty here is that small business owners often have little experience with budgeting. That said, how are you supposed to know how to estimate? First and foremost you won’t be able to get truly accurate projections until you get started. Try to stay conservative and don’t beat yourself up if your initial numbers are off. Once you get a more concrete understanding of your monthly income and expenses you’ll be able to make more accurate projections.
Evaluate and Adjust Every Three Months
After 3-months you should take a step back and carefully evaluate your financials. The golden rule is to spend on the areas that are producing the highest results. For example if email marketing and Google Ad Words both cost you $500 a month but you’re getting 2x the conversions from email, then you may want to refocus more of your marketing efforts there. This may seem like an obvious one but truth is, many small business owners fail to connect these dots. Stay diligent and always evaluate.
Build Out Your Emergency Fund Early
When running a business the unexpected always occurs. Whether the product launch is pushed back 3-months or your server room catches on fire, disasters happen all the time. That said, you need to prioritize building out an emergency fund as early as possible.
Some suggest having 3-months of basic operating expenses in your emergency fund. I personally recommend having six. The reason for this is it pressures you to keep saving. If you happen to dip into that emergency fund to cover some costs you also need to be disciplined about replenishing it. The more free cash you have on hand the better.
Don’t Go At it Alone
If you want to build a successful budget you need to involve multiple people. For starters, involving others will help keep you sane. Small business finance can be a stressful undertaking, and as a business owner it’s not something you want to have all on your shoulders.
Ideally you should involve a member from each department to participate in the budgeting. Since they know their department best they’ll be able to provide the most accurate projections for both income and expenses.
Hold Others Accountable
While a budget may look great on paper it’s really up to your team to abide by it. If your managers are making poor decisions around how they allocate funds you need to address it right away.
Accountability starts from the top and trickles down to everyone else involved. That said you also want to empower lower level employees to hold their superiors accountable. It may feel uncomfortable at first but this sort of transparency will build stronger relationships and a more stable company in the long run.
Like any other goal you set in business or life a budget is the same thing. You won’t figure it out overnight and you probably won’t in the first few months. Stick with it and before you know it you’ll be a finance whiz!