Budgeting is essential for all businesses big or small, however it is even more critical for small businesses working with limited resources. Controlling your expenditure will help provide profit margins, which in turn will allow you to invest in your company’s growth.
An effective budget will not only control your cashflow and make provisions for larger costs, but will also give you an indication of when the time is right to invest further in your business and expand it. Without a solid budget, new businesses are at risk of spending more than they make, thereby becoming insolvent.
Here are five things to consider when planning your budget:
1. Estimate all fixed and variable expenses. Fixed expenses don’t change and can include office rent, utilities, equipment, raw materials and staff, while variable expenses are subject to change and include packaging materials. Keeping track of both when budgeting will allow you to see how much your costs are against your income and this can also help you see if you need to cut down on costs.
2. Research likely ways to improve revenue using factors that can include finding a more lucrative business location, reducing cost of goods sold and your competitor’s rates (check a few local competitors’ fee structures to determine how much you might be able to charge).
3. Adjust estimates as needed, such as using alternative suppliers to lower costs. Evaluate ways to save money like by purchasing materials in bulk, but don’t forget to consider additional expenses, related to inventory storage.
4. Design a spreadsheet to help track figures and changes more easily. Main columns might include expenses and income while sub-columns located below each main column can include budgeted figures, actual figures and the difference.
5. Analyse figures and percentages. It’s important to look at the numbers in relation to the broader framework of your budget. For example office rent of R2,500 a month when all your other expenses equal R10,000, means rental makes up 25% of your total expenditure budget. Knowing these numbers and figures will help you see if you need to make any further adjustments and to keep expenditure in check.