As January becomes February and the end of summer slowly appears on the horizon, you’d be forgiven for thinking the time for making New Year’s resolutions has passed. But when it comes to your small business’s finances, it’s never too late to adopt some good habits. For some people, resolutions can feel like a pipe dream; something to persevere with for a few weeks, before giving up by the middle of February. But you might be surprised that, with a little commitment in the short term, your small business’ long-term financial future could become far healthier.
Whether you’ve been in business for five days or five years, the absence of a regular paycheck – and the stability and peace of mind it provides – can be a little concerning at times. But by creating a budget for 2020 and understanding how to manage it efficiently, you could find you’re in for an exciting year.
Creating a budget may sound like a daunting prospect, but is perhaps the best way to gain a holistic understanding of your small business’ finances. Many businesses experience seasonal ebbs and flows, so analysing your money over a 12-month period is a more accurate representation than, say, a month or quarter. Consider a landscape gardener or a tax accountant who would likely experience an earnings spike during summer or the end of the financial year, respectively.
A good first step is to create a calendar of all your confirmed upcoming projects and how much income you expect to generate from them. Then factor in any regular work you do. If you’ve been in business for a couple of years, use previous years as a guide to help you predict what you can expect to earn and when.
Unfortunately, when you have a good gauge of your income, you need to subtract those unavoidable costs, such as taxes, insurance, membership fees, rent, petrol, equipment or materials hire, and any freelancers or subcontractors that you may engage. It is these little, guaranteed, but often-forgotten items that can push people over the edge of their budget. It’s worth also setting aside a small contingency fund, in the event of anything unexpected. Once complete, a budget can give a great indication of whether you need to book in a few more jobs or have a pot of cash to invest in growing your business.
Creating a budget is one thing, but sticking to it is another thing entirely. Whatever financial outlook your budget provided, it’s difficult to manage it without a regular stream of income. That means you need to be vigilant with your invoices, estimates and expense tracking. Some small business owners wait until the end of the week, or even the end of the month, before submitting invoices, assigning expenses and drafting quotes. That means you’re immediately behind the eight-ball and, as well as making your budget harder to manage, it increases the likelihood that hours and receipts are forgotten or not accounted for. Also, if you know a project is going to have up-front costs for materials, for example, ask for a deposit ahead of you actually starting work.
Don’t be daunted by the process, though. Software helps you easily manage every aspect of your small business finances, from creating professional estimates and quotes to accepting all ways your customers expect to pay.
Unfortunately, whether you like it or not, budgeting is part and parcel of running a small business. But by understanding how to create yours and manage it efficiently, you can spend more time doing what you do best.
Chris Strode, Founder, www.invoice.2go.com