No business owner likes being strapped for cash, but mismanaging cash flow happens. Nearly half (42%) of small business owners report that handling cash flow is challenging, especially in the wake of COVID-19. If you’re struggling to control your small business funds, check out the money management tips in this article which we compiled with the help of AC Waring.
Ensure impeccable bookkeeping and accounting
While both bookkeeping and accounting stand for pretty much the same thing, there is an essential distinction behind them: bookkeeping is about recording expenses, accounting is about interpreting and analyzing them. Both must be impeccable, to always be in touch with the financial state your business is in.
Similarly, expenses need to be categorized correctly. Let’s take the basic example of buying someone lunch. In one situation it’s your client, which you’ve taken out to discuss further proceedings. In another situation, you’ve invited your employees for dinner to celebrate a successful quarter. Despite both being similarly unrelated to business per se, they do have to be placed in different categories. The first one should be considered a sales expense, or even investment. The second should fall into your operations budget.
Proper categorization will allow you to have a better understanding of where costs can be cut, if necessary.
Adhere to a planning cycle
It’s always a great idea to follow a pattern when it comes to objectively assess your annual budget and performance. This will allow you to superpose yearly results, compare them, and find ideas for improvement wherever it’s possible. Create your own pattern that will better reflect the peculiarities of your niche or industry.
Here’s an example:
- Start by analyzing your current performance and comparing it to your previous year. Draw conclusions.
- Find the opportunities for improvement and find the issues that have caused your company to slow down its performance.
- Go through your most successful and least successful projects of the current year and draw conclusions.
- Analyze the necessary budget-related adjustments your company needs to make, in order to adapt to future projects.
- Establish the total resources you’ll need to cover maintenance or any other mandatory elements of a budget.
- Define the upcoming year’s KPI’s regarding profits, taking all the losses into consideration.
- Create a conclusion to your budget plan.
- Don’t forget to address the budget regularly, preferably every month. Your company can always enter an unexpected territory, which implies that the budget might need to be adjusted or modified. Return to it regularly and assess your decisions and possibly introduce new business ideas.
- Return to point 1 and repeat.
Focus on what matters most
It is every company’s freedom to establish what matters to them most, but we believe that it is every businesses responsibility to build a budget with its employees in mind. Your personnel should be one of the central figures in your budget. Never hesitate to allocate some extra resources to improve the quality of life of the people who work for you.
Do not hesitate to allocate a part of your budget for rewards. Each one of your workers have their own concerns, preferences, and interests, which makes it essential to remunerate them in accordance with their interests, when possible. Businesses take time to invest in their personnel’s interests as it guarantees greater percentages of employees’ retention, and normally attracts better professionals for a longer period.
Don’t forget what budgets are for
Budgets have a set of very precise functions and we often forget about them. Budgeting has become such a chore, we tend to automatically execute the plan, without giving it too much thought. However, since all businesses are different, the goals they pursue are different as well.
The common aims of a business’s budget are:
- having better control of the company’s finances
- a clear understanding of whether the company’s commitments can be met in the upcoming year
- “pinpoint” your position financially and give you a better understanding of what your company can and cannot afford
Make sure that there are sufficient resources for upcoming projects
However, it’s essential to establish what other things your company may be looking for when planning a budget.
Relieve your budget plans from ambiguity
It is quite a common case that businesses fail to write a clear budget plan, simply because they don’t have a clear separation of concepts. If not correctly worded a budget plan can become more of a burden, rather than an asset. Never hesitate to consult a professional paper writing service when it comes to writing such documents to eliminate any possible issues related to ambiguity and unclear language.
Budgeting is a demanding task, but it is imperative for the proper functioning of an aspiring business. Make sure you invest the necessary time and effort into your budget, to bring some extra stability to your company.