3 Budgeting Tips for Your Small Business

We’re almost halfway through 2021, and while you might be stopping to take stock of your 2021 goals, the midpoint of the year is also a great time to check in with your budget. Budgeting is always tricky, whether you’re dealing with your personal finances, or your budget for your small business. I can’t help you with your personal finances, but I can give you some tips to help you balance your budget for your small business.

Pay Yourself First

This is a popular piece of advice financial planners often give when it comes to their clients’ personal finances. They tend to use it as a reference to the strategy of putting some money away in a savings account before spending anything, but when it comes to your business, I’m going to use it to refer to your own salary.

As business owners, we often pay ourselves last. We pay off all our expenses, we pay our staff’s salary, and whatever’s left over we use to pay ourselves.

While it is important to invest in your business, allowing yourself to go broke is not a good strategy for building a financially healthy business. Instead, figure out your own personal budget and make sure you pay yourself enough from your business to cover your budget. That’s your salary and you need to treat it like any other business expense. You wouldn’t expect any of your staff to go without a paycheck during tight months, so don’t make yourself go without a paycheck. 

Overestimate Expenses

One of the hurdles a lot of people run into when it comes to budgeting is they tend to underestimate their expenses, and when a new expense appears unexpectedly, they’re forced to go over budget, and that puts your business at risk.

You can avoid that problem by incorporating unexpected expenses into your budget. This is not to say you should be able to predict the future, but you can look at your expected expenses and be sure to add a percentage or a certain dollar amount to account for unexpected expenses. That way, if any new expenses do appear, you’ll be ready.

Pay Attention to Your Sales Cycle

Many businesses have sales cycles: we tend to be busy during some times of the year and experience a decline in business at other times of the year. As with your expenses, some of this might be predictable, but it’s always worthwhile to pay attention to your sales cycles to see if there are any dips or peaks you weren’t anticipating. Knowing when you tend to have money coming in and when you’re likely to experience a reduction in income for your business can help you plan out your expenses. For example, if you know the next month or two will be slow, it might not be the best time to invest in new equipment or bring on new staff.

At the same time, your sales cycle does not always coincide with your cash flow, especially when you’re filing claims with insurance companies, so keep that in mind as well. Just because you had a busy month won’t necessarily mean you’ll be swimming in money if it takes a month or two for those bills to get paid.

Whether you need help budgeting for your small business, tracking the money coming into and leaving your business, or both, we can help with everything from basic bookkeeping tasks to CFO-level tasks. Does your business need a bookkeeping doctor?