A recent study revealed that some of the main reasons why small businesses collapse are because they lose focus and run out of cash, and experience cost and pricing problems. Taking care of your finances is one of the most essential aspects of running a flourishing small business.
To keep tabs on your income and expenses, you need to have a budget in place. While creating and maintaining a budget may seem intimidating, with the right guidance, it can be a straightforward, rewarding process. As a firm with notable experience in business consulting in NYC, we’ll walk you through the steps in creating and maintaining a budget for your small business.
Why create a budget for your small business?
As a small business owner, you must have a solid understanding of your finances. The budget you create for your small business is a financial roadmap outlining your projected income and expenses across a set period (typically one year). Your budget enables you to prepare in advance, manage expenditures, track financial progress, obtain funding, and budget for emergencies.
Prepare in advance
Devising a budget enables you to prepare in advance for your business activities. When you know all about your expected expenses and income, you’ll be able to plan your business activities appropriately. For instance, you may have a hefty outlay in the pipeline, like a large order to fill or a new piece of equipment. So, you can plan to ensure you have the correct funds to hand when you need them.
Manage expenses
Once your budget is in place, it’s easy to manage your expenses and not overspend, which is a common issue experienced by numerous small businesses. If you overspend, this leads to financial headaches, like debt and cash flow problems. Having a budget allows you to keep track of your expenditures so you only spend what you can afford.
Track financial progress
Tracking your financial progress is crucial for making your small business a success. Sticking to a budget means you can compare your financial performance with your budget and tweak it accordingly.
For example, if you discover that you’re spending more than you anticipated, identify areas in which you must cut back to enhance your financial progress.
Budget for emergencies
Unforeseen expenditures can strike at any moment and substantially drain your small business finances. If you have a budget ready, you can reserve capital for unanticipated outlays, like emergencies or equipment repairs. Doing so ensures that your business can deal with any surprise costs that may occur without triggering financial pressure.
Obtain funding
Having an established budget tells impending lenders you have a clear financial plan set up. So, it’s simpler to obtain funding should you need it, meaning more chance of lenders lending money to you because you have a rock-solid financial plan. It says that your small business is financially stable and that there’s a good chance you’ll be able to repay the loan.
The steps involved in creating a budget for a small business
While crafting a budget for your small business may seem a little unnerving, it’s simple. Take a look at these steps, and you’ll create a solid budget for your small business easily.
Step 1: Pinpoint your sources of revenue
First up, identify your income streams. That is to say, understand where your earnings come from. These may include services, sales, or investments. To work out your revenue for the next year, use historical data. For instance, if your small business generated $100,000 in revenue, you can expect to generate $110,000 this year.
Step 2: Calculate your costs
Next, forecast your outlays – these are the funds related to managing your small business, like utilities, rent, and supplies. To work this out, base your expense estimates on past performance to work out your expenses for the following year. So, if your rent was $30,000 last year, it may be roughly $32,000 this year.
Step 3: Determine your bottom-line
To figure out your net earnings, subtract your estimated expenses from your calculated revenue. Your profit is your revenue, excluding your expenditures. This figure tells you how much cash your business is predicted to make once all overheads have been paid. So, if your projected income is $110,000, and your anticipated outlays are $80,000, your net income would be $30,000.
Step 4: Define targets
Establish objectives for your business in line with your net income. These can be long-term or short-term targets and can be non-monetary or monetary. For instance, you could set an objective to recruit three new employees or boost your net income by 15% in the next year.
Step 5: Keep tabs on your progress
Monitor your performance often to make sure you’re on target to achieve your objectives. Revise your budget frequently to indicate any changes in your business, like a rise in revenue or an unanticipated outlay.
How our business advisory consulting and small business accounting solutions can help
Creating and maintaining a budget for your small business can be a laborious affair, particularly if you aren’t acquainted with financial planning. Happily, we, here at Ahad & Co, offer small businesses the best CPA services in NYC that can help you create a budget, monitor your capital, and make well-versed financial choices.
Business advisory consulting
Our business advisory consulting services will enable you to make knowledgeable financial assessments for your small business. We provide professional guidance on risk management, cash flow management, and financial planning. With the help of our team delivering small business consulting in NYC, you’ll create a budget that aligns with your business objectives and guarantees lasting financial solidity.
Small business accounting solutions
At Ahad & Co, we deliver small business accounting solutions to help aid you in keeping tabs on your money matters and ensure that your budget is current. From bookkeeping and payroll management to financial reporting and tax preparation, our CPA in NYC got you covered. If you outsource your accounting needs to us here at Ahad & Co, you’ll have more time to concentrate on running your business while we handle the financial side of things.
The takeaway
Creating and maintaining a budget helps you stay on top of things, control your spending, and plan and prepare for any financial emergencies that may come your way. What’s more, it helps you secure financing, which is never a bad thing.
Happily, creating a budget isn’t rocket science. It’s relatively simple – just estimate your expenses and revenue and set a few objectives. And the good news? We have your back. With our small business accounting solutions and business advisory consulting, creating a budget that aligns with your business objectives and ensures long-term stability’s a walk in the park. Talk to us today.
