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Budgeting Techniques For The Small Enterprise

Here are 5 techniques you can adopt in your small enterprise

18Sep

Whether you are flying solo or starting with a group of co-founders, part of your business growth lies in the strength of your financial decisions. If budgeting is your forte, it won’t hurt to fortify your game plan as you go. If it has always been your Achilles’ heel, it is time to get disciplined about it.

According to this blog, 'Financial discipline is kind of like dieting - one cookie with lunch leads to an unhealthy dinner, and one spending mistake may lead you to regress into old bad habits.' In order to make more money, you need to allocate what you have smartly. Here are 5 techniques you can adopt in your small enterprise.

Know the basics: budget components

Now that you have a company, continue to educate yourself about money. The Small Business Administration defines the basic components of business budgeting, namely, sales and other revenues, total costs and expenses, and profits.

Use due diligence, particularly market research, to determine a sales projection for a certain period. Classify costs according to fixed, variable, and semi-variable. Fixed costs, such as rent and insurance, do not change whether your business succeeds or fails. Variable costs include the cost of materials that go into manufacturing. Meanwhile, salaries, utilities, and advertising are examples of semi-variable costs. Of course, you expect to profit from this enterprise, and that is the third and last basic component.

These three fulfill the equation, which can go either way:

sales = total cost + profit or sales - total cost = profit.

Monitor fixed and variable expenses

Start with tools that you are comfortable with, such as a physical ledger or a spreadsheet. If you are already using one, stick with your business accounting software. Then, you get to the crucial part.

Budgeting requires you to make estimates based on past records or researched figures. If you are starting from scratch, find out the average forecast of similar businesses. Use their projections of fixed, variable, and semi-variable costs.

On your ledger, spreadsheet, or software, add a column for actual expenses and another for the difference between your forecasted and actual numbers. At the end of the month, fill in those columns and then calculate the difference.

Adjust accordingly

During hard economic times, trimming expenditures is another way to budget wisely. There is no going around it, according to the Harvard Business Review. You have to take the difficult path. Determine the extent to which you have to reduce expenses (e.g. 10%, 20%, 30%). Then identify the areas in which you can cut costs.

For instance, you can try outsourcing instead of hiring a digital marketing specialist. Look for alternative technologies that work just as well as but cost lower than your current ones. And finally, you can tighten your belt by eliminating unnecessary purchases, thus avoiding the quick depletion of your company’s petty cash.

Negotiate deals

You do not always push for the best deals when things are smooth sailing. But when faced with budgeting challenges, you may be able to look for ones that will benefit your bottom line. You may consider suppliers and vendors you are not familiar with but offer more favorable prices. Or you can reach a compromise and discuss price reduction with your current suppliers and vendors.

Over time, you will learn how to become a better negotiator. That is why starting somewhere is important. Sticking to your sound financial plan is one good starting point.

Create a vision board

Crafting a budget is a very technical exercise. It requires you to see things as they are. You have to inject the creative spirit somewhere, especially when it is getting harder to follow your game plan. Think back to why you want to make more money. What things did you want to accomplish when you were beginning?

Just like in your personal life, you become motivated when you can picture the result of your endeavor. So, create a vision board that will easily remind you of the goals and vision you have for your business.

As you keep your eyes on the prize, your financial standing will also help you assess if some parts or all of your plan needs some adjustments or an overhaul. Use these illustrations to show where you should re-invest some of your profits in order to grow your business.

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