Steady ship in the roaring Sea.
Managing business is nothing less than sailing a ship in the roaring seas. On the one hand, you have to ensure that you are moving fast enough to get ahead, while looking for the troubles coming on your way, and on the other hand you have to make sure that a small hole does not sink the whole ship while you are busy navigating it.
While most people tend to think about finance in business as getting paid and paying to vendors, the most critical thing is ‘to ensure that you have sufficient cash balance in hand before you burn out completely’ and that it is the secret of successful finance for a small business.
Here are 8 tips to success for Small Business finance and budgeting
1. Make a Budget, No Excuse
No matter whether you have commerce background or not, or if you love the number crunching or not, creating a budget has no excuse for financial success.
And by budget, we do not mean big tables with lots of data, which is not easy to interpret. All it needs is writing down all your expected income and expenses. Deciding where you are going to earn your money from and where you are going to spend. It makes all the difference in a good and bad financial health.
2. Predict more, Expect Less
Financial forecasts are always tricky. We tend to predict a bare minimum cost of work and expect for the incoming revenue. This is where things may not go well. Often the money we expect to come may be delayed or come in parts instead of whole, while we may tend to spend more for some unplanned purchases. Be prepared for delayed payments and expect to get less money in hand than actual. Also, keep a close watch on your expenses and make a little more room for unpredicted expenses.
3. Draft a Monthly Budget, Not Yearly
With rapidly changing scenarios around, and clients turning bad debts quickly before we can know it, annual budgets are a luxury for small businesses. Large enterprises have greater access to investors and lenders who can help them to stay afloat in tough times, so that they can stick to their budgets. But for small businesses, making a monthly budget is more flexible and practical.
The monthly budget will help you keep watch on your spending for each month separately. When preparing a monthly budget then everything is considered individually, and it gives a clear picture of urgent needs and not so immediate needs, this way you can plan your expenses.
4. Plan investments and significant expenses early
Some expenses ought to be made, and we can not avoid them. But what can save a small business from getting surprised is to be prepared for them. Expenses such as tax liabilities at the end of the year, or replacement of batteries of power backup can be predicted six months in advance, and you can make a plan to set a small amount aside monthly to avoid the burden at the end.
5. Try to stay on higher side of your Profit Margin
A business without the motive to make a profit is a charity. So obviously we all have the profit in our mind when we sell anything.
The trick is to set the profit margins - high to low (e.g. 40% ~ 20%) and then always try to stay on the upper margin while dealing with the client. Negotiate hard with the customer to keep your margins on the top level and make sure not to go below the lowest end of it, even if that means giving up on that client (because loss making deal will not be worth it.)
Here is an interesting article on formula for calculating profit margins.
6. Count every penny (you earn or spend)
Businessman often tends to round off while calculating anything and move ahead. But if you really want to stick to your budget you will have to ensure that those small .99 sales price, that you ignore does not eat up a significant 2-5% of your total budget. So ensure that you count every penny that you are planning to spend.
Track all earning and expenses. Spending money on whatever was decided from the first month and nothing else should be added to the list that is not necessary at that time. Being on track will not disturb the budget and cash flow can be constant. Stick to planning should be considered to be a part of a firm that needs to cross every milestone easily.
7. Optimize resources, promote multi-tasking
Gone are the days when a person started his career grinding on a machine and got retired doing the same for 35 years. The industries are changing rapidly and so the desired skill sets to cope up. You can not afford to stick to have people with redundant skills waiting for their next assignment to come.
Train your employees for more than one skill, so that you can optimize the human resources when required instead of looking for new talent. Promote multi-tasking (and automation) to save additional expenses.
8. Last but not the least, Monitor to stay on the way
Number speak the truth. The good result means you have done everything right and doing the same for some years will make your small business stronger while bad result means that some things are done wrong and if not corrected can register your small business in the pages of history. Results should be monitored, and the business should work upon it accordingly. Good results don't mean to deviate from the path. You should continue that result to prosper. Results should be monitored for every deal or every month. This will help small business a lot.
Budget is the oxygen of every small business. Depleting oxygen means you are going to die. Therefore, every small step should be put correctly to survive in this ever growing and ever changing world. Keep track of the budget and never lose control on it. Follow the steps, and one day your small business will not remain "small."
If you want to take control of your business finance and keep on track, then you need a tool like Shimbi Invoice. Shimbi Invoice is made especially for freelance and small business owners, to help them get paid quickly from their clients by raising invoices online, sending reminders and generating receipts. It can be used by any business to keep track of their earnings