A guest blog from our friends at Monday.com
While there are numerous challenges to battle when managing a small business, money concerns are at the top of the list for a majority of small business owners. Celebrating our new partnership with Revolut, we at monday.com are glad to present 5 budgeting tips for the small business owner.
Budgeting is often regarded as the central nervous system of any business since it is a crucial component in driving an organisation’s financial future. There’s often high pressure on small businesses to properly manage their budget than larger ones, since backup funds could be difficult to come by. For you to continuously make profit while balancing all other expenses, you require a robust and concrete budgeting plan.
The tips below are practical, everyday actions you can take to manage your budget effectively.
1. Do not mix personal and business expenses
There are a dozen reasons not to mix your personal and business accounts, including personal liability, tax issues, auditing issues, and jumbled accounting entries, just to mention a few. When things are tight for the business, resist the desire to secure your small business finances with your personal funds since this will create a mess you’ll have to clear later on.
To maintain a clear separation of expenses, set a business budget and personal budget. Adhere to these budgets separately and strictly so that loans and credit cards for the business won’t get used for personal finances and vice versa. You will have yourself to thank for not muddying the finance waters when the need to pay taxes and manage your books arises.
2. Monitor your income and expenditure
For any small business to succeed, there is a need to watch your money as it flows in and goes out. It is important that you understand your money. Who are your most profitable clients? Are all ventures paying for themselves? What are your most profitable areas? This information will let you prioritise your spending and prevent you from investing too much on projects that won’t give the ROI you need.
The same applies for your expenditures. Most solo entrepreneurs work with service providers who work based on a subscription model. This means that rates could skyrocket without any warning. Besides, hidden charges and fees could hurt your business if you have no means of being fully aware of those hidden charges and fees.
monday.com provides a good platform for you to monitor your income and expenses. With our budget planning board, you can note down every activity your business will engage in and every expense you’ll need to account for later. And if you want to see visual analytics of your budget, you can choose from the various chart views to visualise every expense. In addition, each board contains a formula column that lets you balance your budget by letting you compare your estimated budget with the actual budget, see your profit margins and budget roll-overs, etc. Ultimately, you’ll have automated your business’ budgeting.
3. Plan ahead
A good way to manage your budget is looking ahead of your business’ calendar; what will be expensive? Where could you save some money? In this case, you’ll need to account for major processes, like staff recruitment, and minor aspects since they could gradually add up to something your business won’t handle. Avoid underestimating or overestimating your budget because you could easily cut yourself short or eventually run out of money. Planning ahead will help you utilize every coin as effectively as possible.
4. Pay all bills on time
Just as is the case with personal finances, it is essential that you settle your business bills diligently. While late loan payments and credit card fees could cost you dearly, paying small late fees on utility and vendor bills gradually adds up as well. And the same applies to taxes: paying them too late could result in hefty penalties.
You can set up monthly reminders to ensure there are no bills falling through the cracks. If you use the monday.com budget planning board, you have the option to add in a few automations like due date reminders for all your bills. For a young business particularly, the profit-loss margins are quite thin so avoiding late fees can be the difference between ending your fiscal year on a high or low.
5. Constantly revisit your budget
For any small business, the budget will never be consistent or static. It will often evolve and change with the business, and you will need to make adjustments based on your profit and growth patterns. Small business owners might take time to understand their business’ cyclical nature since seasonal trends will naturally affect organisational and budget efficiency. Particularly early on, your budget could undergo numerous changes to adapt to the fluctuating costs.
It is, therefore, advisable that you revisit your annual and monthly budgets regularly to have a clearer, updated picture of all finances. This way, you will better control your financial decisions since you’ll know what your business can afford to spend versus how much you expect it to make.
The more you understand your business’ cash flow and finances, the better prepared you will be to make good money management decisions. And while the tips above will get you going, nothing can replace being hands-on and proactive when managing your business’ finances – no matter how big or small your financial challenge.