Here’s How New Business Owners Can Budget Successfully
In addition to requiring a large amount of time and effort, starting your own business also requires a significant amount of money. In many cases, business owners will need to dip into their own personal savings to kick start their business. Additionally, many refrain from taking a salary for themselves in order to ensure their business is set up for long-term success. To avoid serious financial ramifications, it’s essential that business owners master the art of budgeting.
Here are four smart tips for budgeting your money as a new business owner:
When first getting your business off the ground, there will be a high amount of expenses upfront for things like office supplies, marketing materials and website setup. Although these won’t be monthly costs, they’ll impact your overall budget for at least a few months. That’s why it’s imperative that you overestimate your expenses at first, that way you won’t find yourself in the hole.
Tip: Cut back on expenses that aren’t absolutely necessary during your business’ first few months to help offset some of those initial costs.
Creating an accurate budget for your company is an ongoing process that requires some trial and error. As such, it’s important to study your monthly expenses to identify spending patterns, unnecessary purchases and areas that require a bigger chunk of the budget. Doing so will enable you to perfect your budget moving forward and limit frequent over-spending.
Tip: Don’t feel like you have to change your budget every month. Adjusting after a few months will help you best address patterns.
Gaining a holistic view of your company’s spending patterns requires more than just studying your monthly expenses. To help better understand how you spend money, organize your costs based on priority and category. First, rank your costs from “essential” to “not essential,” then categorize them into buckets such as employee salaries, office supplies and travel.
Tip: Refer to this categorization sheet when you feel like you need to cut back on expenses. It will help you make informed decisions.
Set Up An Emergency Fund
No matter how well you design and adhere to your budget, there will always be times when unexpected expenses arise. That’s why every business owner must set aside funds that can be drawn on in emergency situations without affecting your set budget. Your emergency fund should remain untouched on a monthly basis and should immediately be replenished after it is used.
Tip: Put more money into your emergency fund than you think you’ll need—this will help you avoid dipping into your monthly budget.
Staying on top of all company finances is an important skill that every new business owner needs to prioritize in order to succeed. No matter how well-funded your business may be, budgeting will help set up your business for long term growth, prepare you for unexpected expenses and minimize damage from any periods of low revenue.