Posted on November 29, 2011
Filed Under (Advice, General Business) by jennifer

* Guest post from Ashyia Hill of CreditDonkey *

For many aspiring entrepreneurs, who thought running their own business would be fun, having to manage a budget often comes as a rude awakening. But balancing books and making ends meet are two very real concerns that every small business owner needs to contend with — and many simply fold under the pressure. Many see a budget as a fixed target that needs to be met no matter what. From this misconception stems many problems that small business owners face: from a lack of funding, to getting too hung up on unnecessary spending, or simply going overboard with the expenses. But with some careful planning and help, managing a budget can be quite… manageable.

Following are 10 tips on how to rein in your cash and stay within budget.

  • Don’t think of a budget as set in stone. In its essence, a budget is simply a way for you to keep track of how you’re spending money. It’s unthinkable to let a huge order pass you by just because you have limited capacity and expansion is not permitted by this year’s budget. You can’t plan for events like these and an inflexible budget can cripple your decision-making process. There is a fine line that separates a spending restraint from a business constraint. A budget is supposed to be the former and never the latter.
  • Don’t let last year’s figures be your sole guide. A better guide for drafting a budget would be your business plan. Your short- and long-term goals should dictate the funds that you will need. Your budget should yield to your goals and not the other way around. The opportunities that open up to you now are never the same as last year. So why allot for the same potential expenses?
  • Be transparent, especially with budget cuts. Nothing saps employee morale more than finding out that your funding is going to be less next year. If times are tough and you can’t avoid making cuts, at least keep everybody informed. Make it clear to everyone involved why the cut was necessary and where the money will be diverted. If the reason is acceptable, and if it’s for the greater good of the company, most employees will accept it.
  • Get input from others. It’s not a good idea for a single person to set a company’s budget alone. Gather representatives from every division and let them plead their cases. This way, you draft the budget utilizing different perspectives. Even if you only have a handful of employees, a budget meeting is always in order. Also, don’t be afraid to consult with other small business owners in your industry who have been in business longer than you have.
  • Get everybody on the same page. How can your cost-cutting methods work when nobody’s doing them? Plans to cut utilities spending, for example, have to be made clear to everybody. You have explain why turning the air conditioning off a lot earlier or keeping the thermostat at a certain level is necessary. Small sacrifices to get through tough times are made clearer when employees are made to see the greater scheme of things.
  • Be familiar with your lifelines and know when to use them. A businessman can never fully get away from debt. But in the world of business, debt is not always a bad thing. Take your credit card, for example. Though always keep an eye on interest rates — and find a card with a low one. Even the most careful planning can sometimes go awry and some financial obligations can creep up on you. By having a few contingencies on hand, you can preserve the working relationships you built with suppliers and avert potential crises.
  • Know when to outsource. Many support services are better off outsourced. Even big companies have foregone maintaining a dedicated courier and messenger division in favor of just getting logistics services from UPS or FedEx. The reasoning behind such decisions is that you will never match the efficiency and level of expertise of companies dedicated to specific services. Also, you waste limited resources when you insist on doing something that doesn’t contribute to the bottom line in-house. You save – and make – more money when you get support services out of the way and concentrate on your core business.
  • Keep in mind that a budget is also flexible with regards to time. You can stretch out limited funds by getting into a credit agreement with your suppliers. This allows you to take in goods and materials and start profiting from them even without cash on hand. A budget will serve as your guide so that you can time cash coming in with debts that are getting close to their due dates. The ability to juggle funds is a requirement for all successful businessmen. Budgeting allows you to perfect this skill and use it to your advantage.
  • Make your spending leaner and more streamlined with the help of last year’s budget. Through hindsight, you can prune unnecessary expenses or those that turned out to be duds.
  • Keep business expenses and household expenses separate. You may want to pump money into your business for expansion, but the mortgage is calling for your attention. Nobody said that you have to spend your own money. The U.S. Small Business Administration acknowledges the economic contribution of the more than five million firms that employ less than 20 people. The government offers many loans with different terms suited to every need. Learn what applies to you and get some help in expanding your budget.

Budgeting is a necessary business exercise. Trying to get around it will only net you hardships and more confusion. Instead of avoiding the issue, gain some experience and have your budget work for you. Learn from your mistakes and adjust accordingly. Before you know it, you already have complete control over your expenses. All it takes is a little practice.

Ashyia Hill helps small business owners find the best business credit cards at CreditDonkey, a comparison website.

(1) Comment    Read More