Article Summary: Budgeting business expenses can be a good way to accommodate the ebb and flow that takes place in most businesses throughout the year. Ramping up during busy times and anticipating the occasional lull helps many business owners stay focused on remaining profitable throughout the year.
Here are four things you can do to make budgeting business expenses easy:
- Don’t put it off—create a plan Stick to the plan.
- Establish benchmarks and goals.
- Stay on top of your customers to keep your AR where it should be.
- Start saving.
Even if your company isn’t what’s usually known as a “seasonal” business, your business is likely to ebb and flow with seasonal fluctuations— at least that’s been my experience over the last 35 years. Thankfully, such variations can be expected after a couple of years at the helm of your company; enabling a business owner to prepare and budget accordingly.
Anticipate the Business Cycle
“Anticipate the business cycle” may sound like an oversimplification, but it takes discipline to realize that the high season is going to ebb, sometimes to a trickle, and you’ll have to tighten your belt at least a little after the peak is over. It is a vital part of running a successful small business to plan for those periods when revenue lags (even if only a little).
Having spent many years in a seasonal company, it didn’t take long to recognize the importance of setting aside some profits to pay for expenses until the next busy season, during the lull. I also came to appreciate the importance of capitalizing on the busy season— which usually meant more work, longer hours, and much more to do.
I’ve found that sometimes it’s easy to rationalize spending a little extra during peak times, but it’s necessary to prioritize your offseason expenses if you foresee investing in your company when the revenue is high. This takes discipline and persistence, but when the season is over, you will appreciate your budgeting restraint.
Yet budgeting does include more than your financial tools. During the lulls between busy times, many companies raising their business hours; and some close their doors entirely. Reducing workers is another concern and should be discussed once new employees are recruited so that they understand when there are occasions that you routinely scale back staff — and what that will mean.
When negotiating with your vendors for a “just in time” approach to managing your inventory, you might also be able to minimize business expenses. In other words, if your suppliers have sufficient inventory for you to reach during peak times, you won’t have to bear the cost of keeping the inventory once the peak has subsided. This will probably require you to take a more proactive approach to manage your inventory, but throughout the year, it could help you get a better budget.
5 Things You Can Do To Make Budgeting Business Expenditures Easier
Apart from forecasting the business cycle, here are five things to consider when you plan for the future:
Don’t put it off— create a plan: look with the company peaks and valleys in mind for the next twelve months. Develop a strategy and plan on how to position yourself for the slow periods when revenue is good. Your strategy is going to help you stay focused in fighting the heat.
Keep in mind the plan: If budgeting for future expenses is an important first step and the development of a schedule is the second step, you will need to stick to the plan to make it a success. I am not persuaded that, if situations change, it requires rigid adherence to a schedule, but make sure that you understand the plan and the ramifications of deviating from it in those cases.
Develop benchmarks and goals: poor cash flow management is one of the major causes of small business failure, so it should be a priority to develop policies and plans to properly manage the cash flow. Make sure you are on top of your cash flow measure and consult your CPA accountant if you are unsure about the appropriate approach to take.
Stay on top of your clients: When you bill your customers by invoice and give them 30 days to pay their bills, it doesn’t take long for a slow-paying customer to eat up all the income you might have had — making your busy season less profitable and putting the slower times at risk. You may be giving your customers an additional discount to pay today to speed things up, or have a credit card on file that you can charge at the end of the month against. The goal is to avoid the inevitable problems of the cash flow associated with slow-paying clients. The earlier you reach the cash flow, the easier it is to handle.
Start saving: Setting aside a small amount of cash for a rainy day doesn’t only relate to your budget. There are many unforeseen business expenses that could be dealt with some money in the bank. Operating capital is a good goal to shoot for three to six months but nothing is better than nothing. Some of the cleverest business owners I know frequently set aside some of their earnings to make sure they have at least a three-or six-month buffer if something unexpected happens.
As we’re getting ready to start the next year, there’s no better time to look at how you’ve done this year and prepare a forward budget based on the results of this year.
Author Steve Maleh
A seasoned businessman and 3rd generation entrepreneur, Steve Maleh has founded and started dozens of businesses over the past twenty years. From retail, to restaurants, to technology, several of which were sold, and several of which are multi-million dollar operations today.
Prior to his venture into the mobile space, Steve used his Architectural degrees to build, develop and renovate over 30 million dollars in real estate.
In addition to his own businesses and ventures, Steve has been actively sharing his expertise and knowledge with other entrepreneurs. Acting as an angel investor in several start-up retail businesses.
Steve Maleh holds a Bachelors’s degree in Architecture and entrepreneurship from the University of Miami and has also taken master classes at Columbia University in real estate developing and entrepreneurship.
Steve is currently looking forward to being part of the future innovation in the theatre application market with the launch of his new technology venture SNAX®.