There are many resources out there for small business owners to teach them to market or to use social media or to develop a brand. These are good practices to have but I’d argue that the top business best practice is not marketing or social media usage or branding. It’s budgeting.
Don’t get me wrong: marketing, sales, branding, positioning… they’re all critical to business! But a business that brings in lots of money, but loses the money because it doesn’t know where the cash is going, won’t be in business long. I like to use the example of a bucket: Sales and marketing are meant to increase the amount of water that will flow into your bucket. However, if there are several holes in your bucket then all the water in the world isn’t going to help. Budgeting plugs those holes and helps you to keep track of your money, essentially keeping more of it in the business.
Although budgeting can seem like a drag, especially when you consider the fun and highly creative marketing tasks that need to be done, it’s no wonder that business owners avoid this activity!
Setting a business budget should be a priority. One area where many small business owners get into trouble is with taxes. Thus, when you’re setting up your budget, the first thing you should do is take a percentage of everything you make and put it into an account specifically for taxes. Then, when you get to the end of the year and that dreaded tax bill is due, you won’t be scrambling to figure out how to pay it.
After you have dealt with the tax issue, you should calculate what it will cost to run your business each month. If you are operating your business out of your home, your budget should include an amount for renting the office space in your home and utilities. This amount should be paid to you. Include in your budget an estimate for office supplies, such as paper, ink for your printers, etc.
Remember, it is better to overestimate and have money left over at the end of the year than to underestimate and end up in the red. You should look realistically at your business and decide what it really takes to operate it. If you entertain clients, budget for it. If you’re going to be advertising, budget for that. If you use your personal vehicle, budget for gasoline and a portion of the maintenance. Include your salary and a “catch all” category for those unplanned emergencies. Do not overlook any detail of your operating expense. After you have taken into consideration all the applicable items and prepared a budget, ask your accountant for input.
Now that you have successfully prepared a feasible budget, the biggest and most important step is to stick to it! Sometimes it is easy for a business owner to think, “I’ll make it up later in the year” and spend money that is allocated for something else. Do not fall for that! If you know you’re going to have a big purchase, start saving for it and buy it when you have the money. If you have a catastrophic event, such as your printer dies and you have to get one right now, then that comes out of your “catch all” fund.
If you adhere to your budget faithfully, there will not be any surprises when you meet with your accountant at the end of the year. Truth be told, you may be surprised at how much money you have to start the New Year.