5 Budgeting Tips for Your Small Business

Picture this: You’ve finally opened your small business after months (if not years) of planning and thousands of dollars in expenses. Now, you’re ready to make some money.

Not so fast.

You have to spend money to make money. Unfortunately, the reality is that expenses don’t stop just because your business is up and running. Expenses will be a constant element of owning and managing a small business, regardless of your product or service.

The thing about business expenses is that you can’t just spend your money haphazardly. You likely poured a lot of effort into building your business, so you don’t want it tumbling down because of bad spending practices.

People often get stressed when they think about budgeting. Many employed people ask themselves how to keep a certain amount of their salaries as savings while having enough left to spend on necessities like food, shelter, and utilities. 

In fact, 61 percent of Canadians say keeping up with monthly bills is their most significant financial anxiety.

Things are no different when you’re a business owner, especially if you’ve just opened your first venture. You may find it even more stressful because you have many more variables to consider than the average salaried person.

Budgeting for your small business doesn’t have to be a pain. If you want to streamline your budgeting and simplify your business life, you’ve come to the right place. This article will discuss five budgeting tips for your small business.

1. Lay Out Your Costs

One of the worst things that can happen is writing up a budget and then realizing you need more money than you initially thought. Spelling out your costs will let you plan an accurate and realistic budget because it gives you a concrete idea of what you need to spend money on. 

The costs you incur will depend on the type of business you run, but they generally include four categories:

  • Fixed costs
  • Variable costs
  • One-time costs
  • Unexpected costs

Fixed costs generally don’t change in their amounts and are a part of most businesses’ expenses. If you have a brick-and-mortar location and a few employees, your fixed costs include rent (or mortgage), employee salaries, utility payments, and insurance.

Variable costs change depending on the volume, including raw materials, packaging, shipping fees, and utilities (depending on your usage).

One-time costs are often initial expenses you need to make to set up your business. Still, you can also encounter them in later stages. An example would be if you ran an ice cream shop and needed an additional freezer because you’re expanding your business.

Unexpected expenses involve anything you didn’t plan on spending money on. If a pipe bursts in your store and floods it with water, you’ll have to hire professionals to fix the pipe, get rid of the water, and clean your store.

Planning your budget around these expenses lets you make informed decisions and avoid nasty, expensive surprises.

2. Set a Financial Cushion

You need to remember one thing when budgeting for your small business. You can’t account for everything, no matter how much you plan, and your expenses will never exactly match your budget.

You’ll likely go over budget at one point or another, and the best way to avoid this is to create a financial cushion by overestimating your budget.

As a small business owner, we understand that you may not have the type of cash flow that multi-million dollar companies do. However, you can still protect yourself from financial stress using your limited resources.

If you have an average monthly business budget of $5,000, overestimate your budget by $500 to $1,000, depending on your cash flow. Overestimating your budget by only 10 to 20 percent gives you a much-needed safety net. When your actual expenses are lower than your budget, you improve your cash flow for the next round of budgeting.

3. An Online Budget Planner Can Be Your Best Friend

There are many ways to draft a business budget. Some people, especially older generations, can be old-fashioned by still using pen and paper. Meanwhile, according to Xero, about 31 percent of Canadian small businesses use software to manage their cash flow. 

Some entrepreneurs prefer spreadsheets because of the customization options available, layout cleanliness, and automated calculations. 

But what if we told you there was something better than spreadsheets? Do you want to take your budgeting to the next level and streamline one of the most taxing parts of running a business? Use an online budget planner.

You’re missing out if you’re not using an online budget planner. An online budget planner can show you your daily business cash flow, including all your expenses. You’ll always be able to track how you’re spending your money and quickly determine if there are any discrepancies.

Besides letting you plan your business budget, there are online budget planners with fantastic features. 

Some online budget planners allow you to integrate your business accounts into the tool. Feel free to add your business bank accounts (checking and savings), business credit cards, business mortgage accounts, and more.

You can even do a free “soft” pull on your credit report, which won’t count against your score or cash flow.

The beauty of an online budget planner is that it gives you the financial insights you need to make informed business decisions in one clean and intuitive interface. 

If you’re worried about data security, don’t be. Online budget planners have robust security features, like multi-factor authentication (MFA), to protect your financial information.

4. Study Your Industry

Every business operates differently but often follows the same standards, especially in the same industry. 

Research how much things usually cost in your industry. Your operating expenses should still be somewhat similar to those of your competitors across the street, especially if your businesses are of similar size.

Something must be fixed if your expenses are much higher than the industry average. Maybe a supplier is charging you more for the same supplies they offer your competition because they know you’re a new business owner and are taking advantage of you.

Doing your homework is essential to avoid overspending. Do research on your local competition to understand how they operate. You can even try visiting their businesses and asking them for advice. Ask how much things should typically cost, including supplies, employee salaries, raw materials, and any other expenses in your specific industry.

You can also visit the Canada Revenue Agency’s Business and Industry page to learn the ins and outs of owning a business. This page has several sections dedicated to supporting Canadian small businesses, including managing your business operations, filing business taxes, and financial business planning.

5. Plan for the Future

Unlike large, well-established companies, small businesses are much more volatile and easily affected by industry declines.

A perfect example is the COVID-19 pandemic and its effect on Canadian small businesses (and small businesses worldwide). It’s safe to say nobody expected COVID-19 to hit the economy the way that it did. While large Canadian corporations also had rough experiences during the pandemic, small businesses suffered even more. 

Data from Statistics Canada showed that approximately 39.4 percent of the smallest businesses (1 to 19 employees) expected challenges in paying back the funding they received from repayable relief programs the Canadian government offered to support struggling businesses. Meanwhile, only 5.8 percent of the larger companies (at least 100 employees) had the same concerns.

The pandemic’s harshest economic effects may have subsided, but that doesn’t mean you can afford to be lax about your business expenses.

Look into the future, and reassess your budget periodically.

Plan for sales downturns, especially if you run a business with seasonality, like pool cleaning, snow removal, or landscaping. 

While no one wants to deal with another pandemic, it’s better to be safe and save money for rainy days. You should also consider cutting costs when and where possible. 

Being smart about your business expenses will let you feed your family, pay your employees, keep your business afloat, and avoid borrowing money from the government during periods of low sales or economic turmoil.

Savvy Budgeting Is the Key to Business Success

Budgeting is an ever-present part of running your business. You can’t escape it, so you might as well do it right from the get-go. Every company manages cash flow differently, but you and every small business owner have the same goal: to earn profits and be successful for the foreseeable future.

Remember the tips above, and you can plan your expenses accordingly, streamline your budgeting process, save money for emergencies, and enhance your cash flow.

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