Small businesses are not like corporations, whose budgets tend to be much larger and more flexible. Generous expense accounts and stipends are probably not in your near future if you run a micro-enterprise. Even so, there are steps you can take to rise above the financial obstacles that typically befall smaller companies.
Minimize the Effects Of Fluctuating Cash Flow
If you’re not making a lot of money, there may be times when your expenses are larger than your income one month, with the situation reversed the next. While you can’t always control the speed at which money comes in or the amount, you can use cash flow statements to your advantage. If you compile one each month, you will be able to see over time when you will need to apply for more credit or conserve cash and when you can breathe a little easier with a surplus. In short, these documents help you to avoid surprises and to plan accordingly.
Plan for Deficits
In certain types of industries, such as those that have seasonal spikes in sales, deficits are virtually a given. Plan ahead for shortages of cash by working out contracts in advance with people such as your landlord, lenders, employees and vendors. When you do this, they will know how to better manage their own cash flow. Other deficit-minimizing strategies include using discounts to boost your sales, switching to low rate credit card processing equipment , depreciating assets, raising your prices, and even selling stale inventory at a loss.
Adjust for Variables in Your Budget
Unpredictable factors are the order of the day when it comes to running a business. Unfortunately, your entire budget can get thrown off if you fail to meet targets along the way. For that reason, it’s a smart idea to do a monthly budget variance analysis to catch inconsistencies and make adjustments before the issue is amplified. You can also use next year’s annual budget to predict various sales and expense scenarios and plan for them in advance.
Get a Handle on Specific Costs
If you just complete a general budget, you will only get a very basic idea of your revenue and expenses. Breaking down your costs into overhead and production categories can make your budget truly work for you. Overhead costs are those you incur in order to run the company. These include rent, office equipment and insurance. Production costs reflect all of the expenses that go into making your product or providing your service. With these expenses divided in this way, you will be better able to set prices, assess profit margins, and thus project future sales.
Many small companies operate on the thinnest of margins. For this reason, careful thought and planning are necessary if you wish to transform a potential loss into a gain. Taking these seemingly small steps can make all the difference.