A 2018 Clutch survey claims that 61% of small businesses did not create a budget. If you’re one of the 61%, it could mean you’re unaware of their unnecessary expenses within your business. Making a budget doesn’t have to be difficult so that’s why we’ve written this article to help.
In this article, we’ll discuss:
- Why budgeting is crucial for small businesses
- What the risks are without one
- How to budget
- How to make it effective
Whether you’re a sole trader or you’ve just launched an exciting new small business venture, read on to discover how Countingup can help you save money and grow your business by sticking to a budget.
Why budgeting is important for small businesses
Whilst not having a budget might make you think you have more flexibility because your costs aren’t fixed, it also means you have more blindspots for where you’re losing money. For small businesses, not having a budget is even more worrying because every penny counts.
Primarily, budgets are practical: a simple tool to help you keep track of your numbers. Having a budget can help separate your personal and business finances in the early stages before you have a dedicated business account set up. Your budget also allows you to keep track of the debt and taxes you owe so you don’t get caught out overspending.
However, the true power in budgeting comes from how you can learn from it. It’s more than just saving money from additional and unnecessary expenditure. As your business grows, you’ll gain insight into how to improve. By keeping to your budget, you can learn how small strategy changes impact your profits, how close you are to certain financial goals, and, importantly, how your budget can be scaled up as your business grows.
Without this key understanding of your past performance, the steps you take to grow your business may be misplaced in the future. With Countingup, this problem is no more. By having all the information on your business’ performance in one place, you’ll be able to understand key changes to your budget early on.
How to budget
No two businesses are alike, and your budget will be as unique as the business itself. The important thing to remember is the key steps in making one are the same:
- Find out how much money you are making. This will mean looking at all your income sources over a given month and generating a total figure. As your business grows, finding new avenues to maximise your income figures is essential.
- Find out how much of your costs are fixed and variable. From your expenses, one portion will be fixed, the other will be variable. Fixed costs include things like rent on your unit, payroll, website hosting, and more. Variable costs might be things like inventory for a certain month, electricity/gas, and travel expenses. Separate each type so you know which costs you can minimise, and which you can’t. Knowing which variable costs you can reduce means your business is more durable in quieter sales periods.
- Add any one-time costs or purchases. Costs to your business won’t always be regular, and having a budget that can accommodate sudden and necessary outgoings is important. Sometimes this can be money to cover one-time and sudden purchases. Other examples might include annually billed expenses that you can budget for ahead of time. Make sure you have room in your budget for both to give yourself peace of mind.
From these figures, you can create a weekly figure to work towards that takes account of your ideal take-home figure. Whether this number is your total units sold, client commissions, or total customer activations, you can identify how cuts and investments in your budget can affect your targets.
If you’d like more information on budgeting, and how to structure various arms of your spending or saving, check out our article on ‘The 50/30/20 budget rule’.
If you’re at an earlier stage and starting a business on no money, find out how to run an even leaner budget.
How to make the most of your budget
Making a lasting budget can be done in a number of different ways but here are some core tips of ours for making your budget achievable and effective in the long term:
- Set spending goals and review them regularly. Having a plan is just as important as reviewing how successful it was, and trying new things to maximise it. Once you have a working budget for a few months, try making small adjustments to see if you can improve your finances.
- Research your options before you purchase. Whether it’s finding a cheaper supplier for routine costs, or a better price for a single purchase, being savvy with your budget can help you save money where it matters most. While this might involve some leg work in comparing prices, taking the time can help you find favourable deals and rates to save with.
- Leave room just in case. A plan is only as good as how much it prepares you. Having space in your budget will mean you can deal with any barriers to entry as you come across them. This is especially important as you start and find your way because you might not know what additional costs to expect.
- Cut expenses. Starting a business can be volatile at first. Being able to identify areas where you can pivot and save can help you make your budget more viable. Regular periods of reviewing your budget can help you identify areas where you’ve overspent before, or where you can look to underspend in the future.
Budgeting and Countingup
With Countingup, budgeting for your small business is simple. By having your business current account and accounting software in one app, we automate the time-consuming aspects of your financial admin. Instead, you can focus on doing what you love and do best. Find out more about our competitive pricing for business owners here.
Download the app from the App Store or Google Play Store and sign up for free today.