Sunday, May 31, 2015

How Budegeting Correctly Can Help You Get Money For A Small Business

Many entrepreneurs launch a new business without carefully analyzing their financial prospects in advance. They think all they need to do is sell enough of a wonderful product to create a profitable business, but this is rarely the case.

A budget, when done correctly, is a powerful tool that will help you make better decisions, and give you a picture of what you what you money is necessary in order to be a successful business in the next 6 months, 12 months and longer. Understanding and having a close control over the money needs of your small business is the key to that success and learning how to prepare an accurate budget is one of the first steps.
• Projected Sales & Revenue
• Costs of achieving that level of sales & revenue
• Profit or loss of combing projected sales and their costs
• Ongoing cumulative monthly cash flow
It can be the quick downfall of any small business to overestimate your sales and revenue. It is wonderful to look at a figure on paper for an annual projection, and see big profitable numbers. But the skill of and know how of a successful businessman is his ability to project this number with accuracy and to underestimate it for budget purposes, while simultaneously trying to beat it in his sales department.
A two your old business will look at their track record of sales to existing customers to see where they can grow and expand. If you are in a start up business you will have to take a very realistic look at your existing relationships with potential customers, and conservatively project sales from that.
A helpful way of dividing these business costs relate to what is considered fixed and variable costs. Your fixed costs are those costs you will have for your business no matter how much sales you generate. Your variable costs vary based on your volume of sales.
Some of the fixed costs you can encounter in business include monthly office rent, office salaries, utilities, telephone and computer services, insurance, bank fees, and a minimum amount for marketing.
Variable costs are connected to the product or service volume you are doing. If you pay salesmen commissions rather than salary, that is variable. If you have a product, the cost of the product is a variable expense, because the amount of product you sell and its costs will vary from month to month. If your sales increase you have to consider higher marketing and sales service costs as well.
The total of sales revenue and both variable and fixed costs of business operations will yield a number which is your profit and loss, often referred to as a P&L. In a business start up you will experience many months of losses until you reach your breakeven on your P&L. You must make sure you have enough money to cover the losses prior to reaching your breakeven. It is why it is so important to be conservative in your sales projections and accurate in your costs projections, because you would rather be in a position where you planned and end up with more
money for a small business start up [] than less.
Use the budget as your financial blueprint, and as a check to know you are on the right track. If you see that your numbers are off, then take the time to talk and analyze what it is that went right or wrong. The more you take out time to review your business and understand the trends, the more likely you are to be profitable
On a weekly and monthly basis the most important figures to check are your overall revenue and costs. Keep an eye out to monitor if your revenue does not match what you expected, and if it continues for at least three months you may have to trim back your expenses. On the other hand, if your revenue has exceeded your expectations, you can find ways to re-invest in marketing and building sales. Except that the rule is to be quicker to cut back costs that you are to re-invest in more expenditure. It is always better to keep a small cushion of cash revenue to protect your business from unexpected problems.
When you have the need to cut back expenses and costs you must review the expenses on a line by line basis. Remember that you budget is just an estimate, and you should expect to be off target and miss the estimate. Check each line item For example, if you budgeted $300 for cellular phone service and your bill consistently reaches $400 for three straight months, you must adjust your figures and increase your revenue, or figure out how to reduce your cost
Business experts will tell you "money you don't spend is money you don't have to earn".
The uncertainty of budgeting, both in projecting your income as well as expenses, is the biggest challenge to the survival of small business. It makes great business sense to put away some of your income whenever possible, into a money market fund, to keep your business protected. That money you set aside can be used for year end taxes or an unexpected high business expense.
Adhering to the budget you set is great fiscal discipline, and the foundation of how to make a small business plan. But don't overdo it. If you have put away revenue in the bank and a business opportunity comes up, evaluate its potential for increased revenue and spend the money. Sometimes an important trade show where you can network and make important business contacts is an opportunity you should not pass up.
Once you have learned fiscal discipline, the next step is understanding smart investment. If the old adage is "it takes money to make money", by budgeting you will learn how to conservatively keep you cash flow positive, so you will have the money to invest in your small business when the right opportunity comes up or apply for a small business loan. []
Morris N. Mann
Family Business Consultant
Over 20 years hands on business experience as entrepreneur
Small Business Success []
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