It’s no secret that budgeting is key to succeeding in business. Your organization can’t thrive if you’re spending more than your making.
That’s why it’s important to ask yourself these questions when creating a budget. Doing so will ensure you don’t overlook any essential factors.
What are my expenses?
This is an obvious question to ask. However, it’s worth mentioning here, simply because you may need to take more time with this budgeting step than you initially considered.
It’s crucial that you identify every possible expense when putting together a budget. There are some which are easy to remember, such as employee salaries, rent, utilities, supplies, and digital services. That said, there are also expenses you might not anticipate.
An example would be the cost of replacing an employee who suddenly quits. One study shows that turnover per employee costs $15,000 on average. When an worker leaves the company, you have to find a replacement, which is generally a costly process. Until you do, productivity will also suffer, resulting in lost revenue.
This isn’t the type of expense you can predict facing with absolute certainty. Maybe you’ll be lucky, and in your first few years, not a single employee will leave. That doesn’t mean you shouldn’t include this factor in the budget. If someone does quit, you want to be financially prepared.
What’s my cash flow situation?
The manner in which businesses get paid by customers and clients varies on a case-by-case basis. For example, if you run an ecommerce shop, you may make sales daily, ensuring a fairly consistent cash flow. On the other hand, if you provide services to your clients, many factors impact cash flow, including the amount of time it takes to complete a project to a client’s satisfaction, and the amount of time it takes for clients to pay invoices. Some clients might also be delinquent in their payments.
There are options when this happens. With invoice factoring, you can turn unpaid invoices into cash fast. This is a solution worth considering if you find yourself without enough cash to cover operating costs.
Still, this is a situation you’d like to avoid. Make sure you do by carefully evaluating your cash flow when creating a budget.
How consistently do I earn revenue?
Different businesses earn revenue according to different rhythms and schedules. While one organization may earn consistent revenue all throughout the year, another may go through slow periods.
An example would be a client-centric business. During summer, when clients may be more preoccupied with going on vacation and spending time with their families, your business might not be bringing in as much money as it does during other times of year.
Account for this when budgeting. You don’t want to be stuck without liquidity because you didn’t consider seasonal patterns.
What are my goals?
You have to spend money to make money. This remains a popular phrase simply because it’s the truth. You can’t grow a thriving business without making an investment. Even just starting a small home business costs an average of $2,000 to $5,000.
That said, there are some expenses that may not be necessary right away. For example, while you may want to give your team an office with a gorgeous view of your city, if the rent is too high, you might be better off accepting a worse view in exchange for saving money.
Keeping your goals in mind when budgeting is crucial. You’ll be more likely to identify where you can (and should) save money if you’re willing to decide what you want to achieve.
Imagine you’re starting a house painting business. Maybe your goal is to eventually become to the go-to home painter for high net worth customers in your region. To serve their needs, you’ll need to invest in equipment, employees, and other resources. That might require cutting expenses elsewhere.
These are all important factors to remember when creating your budget. Although there are many other questions worth asking yourself, these can’t be overlooked. You’ll be far more likely to succeed if you remember them.