There are various ways to budget your money as a small business, many of which can occur simultaneously. The basics of budgeting are relatively common knowledge, like outlining your business goals, determining how much you’ll need to accomplish those goals, revenue versus expenses, and so on. However, once you get into the thick of it and start accruing more expenses, you may need to dig a little deeper and put a more detailed plan into place. Here are a few necessary components of effectively budgeting big expenses with a small business and staying on top of fast-moving finances as a small business.
Cash Flow Budget
Managing and forecasting cash flow is a critical component of budgeting as it provides you a prediction of the money that will come in and go out of your business within a certain time period. If you lack enough incoming cash to cover expenses, you can end up in a negative cash flow which can be damaging to your overall business health and land you in extra debt. Loans or other financing may be needed if your cash flow can’t meet immediate needs.
Your operating budget outlines all revenue and expenses that your business will require to remain operational. This includes things like fixed and variable costs, revenue, and expenditures, etc. This is the type of budgeting most people think of when outlining their overall budget. It allows you to track your progress toward predetermined goals and make adjustments as necessary. The operating budget is typically a combination of several other budget types, such as sales, production, labor, overhead, and others, which are outlined below.
The financial budget summarizes the elements of your balance sheet, which include assets, liabilities, and stockholder equity. These components are a large indicator of your business’ overall financial health and are critical when looking to acquire funding or an initial public offering. This is a way to help you understand how much money you need to achieve short- and long-term needs.
Any business that has employees or plans to hire them needs to create a labor budget. Not only does it help you determine how much you would need to spend on payroll for those employees, but it also helps you identify how many employees you’d need to achieve a desired production level and meet output needs, whether that is in products or services.
Planning your capital budget is how you prepare for large asset purchases such as operating equipment, new real estate property, or business vehicles. Within your capital budget you can see not only the overall cost of the asset, but also how long it will take to pay back and the asset’s return on investment. These factors will help you determine whether the cost of a large asset is a smart investment based on its forecasted ROI.
Speak to a Financial Advisor Today
Many small business owners assume that having a tax accountant is the only necessary component for financial strategy. And while an accountant is paramount in helping you summarize your past expenses and revenue a financial advisor can help you more effectively plan for future endeavors and necessary budgeting tactics.
There are also additional budgeting strategies to consider outside of those listed above, such as the production budget, static budget, overhead budget, and master budget. It can sometimes feel a bit overwhelming as a small business owner, and that’s why speaking to a financial advisor can be a helpful way to lift some of that burden off your shoulders and ensure a confident financial future. Learn more about our financial advising services at Republic Bank or reach out to us directly at 800-526-9127.