Does your budgeting challenge you lately?

You are not alone. In fact, poor cash flow management is one of the causes of business failure within the first few months of operation. Lack of experience and knowledge lead to costly mistakes in budgeting.

The 2021 Gartner CFO survey shows that 72% of CFOs will focus on improving the flexibility of their budgeting and forecasting. The impact of the pandemic exposed the vulnerability of businesses to withstand the unpredictable changes in the environment.

There are ways to secure your budget and have a systematic financial plan. Here are 5 tips you can start doing today.

  1. Save on your fixed and variable costs

To save on fixed and variable costs, you need to categorise all your expenses first and identify where they fall under.

Small businesses that recently started operations can determine the fixed and variable costs. Just keep these points in mind:

  • Fixed costs are time-related (eg. Salaries, rent, taxes)
  • Variable costs depend on the volume and output level (eg. Production costs, part-time staff wages, credit card fees)

You can start evaluating your projected profits once these expenses are determined. Monitor your fixed expenses since premiums may increase in the following year.

To allocate budget for variable costs, review your spending pattern if you have available data from previous years. See how much you spent on those categories in your variable costs and divide the amount by 12. You can set aside that amount for your monthly variable expense.

  1. Set an emergency fund

Emergency funds may come in handy during the lean season in your business. Similarly, it can help your business survive natural disasters like floods. Many external factors are harder to predict than expected. One of the best things to safeguard your business is to set aside a budget for unexpected expenditures.

emergency fund

  1. Analyse inventory to minimise over-spending

Work with your trusted bookkeeper to understand your inventory better. Keep track of the following items in your inventory:

  • The demand for products
  • The revenue generated for those products
  • The demand-to-supply ratio

From here, you can identify the exact quantities of products to avoid overspending or overstocking.

  1. Know your sales cycle

Review your average sales cycle and know the peak and lean seasons of the business. This lets you prepare for upcoming expenses and reduce costs during slow periods. The last thing you want to happen is pulling out cash resources from your personal fund to cover business expenses.

READ: Solving 6 cash flow problems of small businesses

budgeting for business owners

  1. Have an expert to help you in budgeting

Are there expenses where you overspend? Do you need to invest more resources? Are there costs that are unnecessary? How prepared are you for unexpected circumstances? Having an experienced and qualified bookkeeper helps you answer these questions objectively. They may also spot potential issues you overlooked at. A qualified bookkeeper can provide insights to mitigate those issues before they become significant problems.

Do you need help with budgeting?

Call us today for a free discussion with Fabiana Silva, a registered Bookkeeper and BAS agent.

Read more about Fabiana Silva and Focus Bookkeeping.