82% of small businesses fail due to poor cash flow management.
Before you can think about making money, you must first figure out how to sustain your business. Running a business is a continuous investment, and your budget is your lifeline.
It can affect business decisions, like upgrading equipment or things you need to stock up on. So, how do you create a budget that will support your company’s growth? Luckily for you, we’ve created a list of budgeting tips for beginners.
1. Review Industry Standards
A good way to find out how much your startup needs is to check industry standards. No two businesses are the same, but it can give you a starting point. Talk to other business owners to get more information about your industry.
You can also check the IRS website to find out how much of your revenue will likely go to cost groups. You don’t need to get too specific in your research. A cost average should suffice, as small businesses are more prone to volatility.
2. Look at Your Revenue
Take a look at all your cash flow and revenue sources. This should let you know how much money comes into your business every month. As a small business, your income may vary between different times of the year.
However, this gives you an opportunity to look at patterns and how the seasons affect your monthly income. You can then use this information to plan for slow months or see how you can speed it up.
This also helps you determine how much you need to set aside for fixed and variable costs. Fixed costs are expenses that stay the same regardless of your business’s performance. This includes rent and taxes.
Variable costs are expenses that change throughout your business’s lifetime. This may include utility costs and raw materials.
3. Set Aside an Emergency Fund
44% of small businesses aren’t prepared for financial emergencies. Unfortunately, this is what leads many businesses to their downfall. You want to have at least six months’ worth of operating expenses in your contingency fund.
This gives you a safety net in case of natural disasters or unexpected expenses. If you have equipment failures or bills that weren’t accounted for in your initial budget, you’ll always have something to fall back on.
4. Risk Assessment
Businesses face different challenges depending on their location or industry. If you want to secure a stable financial future, you must consider risks when creating a company budget.
Your business might be in an area prone to weather-related disasters. That means you might have to get additional insurance to protect your business.
5. Always Revisit Your Budget
Review your business budget on a regular basis to ensure there’s no room for surprises. As mentioned prior, small businesses are more volatile and prone to downturns. Reviewing company finances can keep you ahead of any curveballs.
Need budgeting help? Check out the best accounting for small business.
Business Budgeting Tips for Beginners
Here are some business budgeting tips for beginners. The first year is always the hardest for small businesses, but these tips will help you sustain your business and keep track of its growth.
Are you a new small business owner? Don’t stop here. Check out our other blog posts for more guides on running a business.
