How to Properly Maintain your Small Business Budget
14 December 2021 |
So you’ve built your business budget, you’ll need to ensure you properly monitor it.
Naturally, this can seem like a very big task. Keeping track of your expenditure requires meticulous attention to detail and inputting your income week by week can seem like just another admin task. An accountant may be the answer to all your problems, but if cash flow is tight you may need to start off by managing the budget yourself. When properly monitored and regularly updated, budgeting is not such a daunting task.
To help you keep track of your budget in the most efficient way possible, we’ve compiled a guide that includes the tips and tricks we’ve learnt over the years.
Document tracking process
Firstly, you’ll need to create an additional tab in your budget sheet to track your actual profit margin vs the one you initially budgeted. Set up a formula to allow you to understand whether you are tracking above or below budget each month, and where you may need to make cut backs or be able to invest more. This will be a simple case of inputting your actual expenses and income month by month and figuring out the profit margin. You’ll then need to do a V lookup against your original budget and compare the percentage difference between the two.
Use reports to Track
Consider what reports you are currently running that will help you to keep track of your budget. You will most likely be pulling some kind of revenue report on a Monday morning to understand the sales you have generated in the previous week. If you sell through a website, GA offers an easy view of your finances so you don’t have to keep track. Simply head to conversions>ecommerce>sales performance to view your income, adjusting the dates as necessary.
Track Income
If you work via contracts and invoicing, set up a tracker to monitor how much money will be coming in each month. Input this information in the month you will receive payment. If you are struggling with cash flow month by month, consider implementing a shorter invoicing payment window. Discuss with your clients whether this is possible, and agree on terms that work for both parties.
As soon as you send out an invoice, put this information into your tracker. It is far easier to manage on a sale by sale basis, rather than leaving them all to input in a big bulk.
Track Expenses
In the same way that you input your income, you will need to track your outgoings too. The joy of online banking is that you can keep track of expenses in real-time.
First thing on a Monday, take a look at what you spent the week before and put all of this information into your tracker. Many banks offer apps that divide your costs into various sub-categories (travel, food etc) which will help if you want to dig deeper and understand where you can cut costs. However, as long as your top line figures are accurate, you will be able to understand whether you are on track or not.
Be kind to yourself
Entrepreneurs are very busy people, and often have to be reactionary. If you are only able to look at top line figures for now, that’s OK. As long as you are hitting your profit margin you are on track.
In addition, if you operate a service-based business you may receive your payments late, and in one month will earn twice than the previous. Factor this in, and don’t worry if you are slightly down one month. As long as you know the money is coming in, you can breathe easy.
Finally, it is important to remember that many start-ups don’t turn a profit until the second or third year. This is OK too. As long as your growth is headed in the right direction, and you are aware of your expenses, you’re on track.
Negotiate Savings
If you are consistently overspending, this is the time to dig deep. Negotiate with suppliers and shop around for alternatives, if there is no movement in cost. Consider what you are currently outsourcing that could be taken on within your team. Build good relationships with the people you work with, and you’ll be surprised by how much easier it is to negotiate.
If you divide your expenses into different areas you’ll be able to identify if there is a particular area that is driving up costs. Take time to look at this, and hire an accountant if necessary. It is a worthwhile expense at this point and may be the thing that turns your business around. Lastly, don’t be afraid to go back to the drawing board and amend your budget if needed.
Keep fixed expenses low
Try and keep your fixed expenses as low as you can, so that you can play with your variables. The beauty of budgeting is that you can be flexible with what you spend, if you identify that you can afford it. You have to invest if you want to grow, so don’t be afraid of spending money if you have it to spare. As long as it will benefit your business, it is worth doing.
Engage your team
If different members are responsible for different areas of the business, encourage them to take on their part of the budget. Conduct training sessions on how best to manage it and incentivise accurate budget management, detailing how the money will be re-invested when you turn a profit. Higher salaries? A bigger budget for marketing? Whatever the case may be, a more profitable company offers more exciting opportunities, which benefits employer and employee alike.
Look at your team and consider their strengths. There may be a member who is more excel savvy, and can come up with an even more efficient method for tracking. Or a colleague with excellent negotiating skills. Make the most of your team if you have one. If you are on your own, don’t be afraid of hiring an accountant. They don’t bite! However, if this is out of your price range, specialised accounting software will also do the trick.
Don’t get complacent
Even if you are over-performing, continually look at where you can cut costs and shop around for deals. The more spare cash, the more you can grow.
Consider tax breaks
Consider tax breaks available for small businesses. The EIS and SEIS schemes are fantastic (check out our earlier blog posts about them here and here).
Hopefully, these tips and tricks will help you on your way. However, it is worth noting that if you are struggling, do not be afraid to ask for help. A short term expenditure (hiring an accountant) may lead to better long term growth. Which is what all founders wish for! So with that, we bid you good luck, and happy budgeting!
See below for useful articles, and ones we have referenced above.