One of the hardest things for a SME owner to do is formulating the budget, and this can really be the difference between a successful and unsuccessful business. It is only with a thorough understanding of the forces at play and how you can use these to your advantage that you can truly set up your business or organisation for financial success.
We’re going to take you through some budgeting tips for SME owners. Implement these ideas and concepts into your overall business plan, and enjoy the benefits of a business with good books.
The difference between a good budget and an inaccurate budget often comes in the estimate of the income of the business. A budget is only as good and useful as the revenue estimate, and if this isn’t accurate you’re not really dealing with the right figures. Base revenue estimates on previous and historic sales data, and be conservative in your estimates. You never really know what’s around the corner.
One idea some business owners employ is having a budget for when things are going well and a separate one for when things are going bad, and both should include a minimum requirement so you have an understanding of how success looks.
When you’re first starting out with your SME, it may be a good idea to put everything together on a simple spreadsheet, just as a means of keeping things in terms you can understand. We’d recommended your spreadsheet containing three columns – budget, actual, and variance. Of course, as your business starts to grow and evolve you may find it useful to add additional columns, figures and metrics to your table, but at least when you’re first starting out this is a good base to build from.
Larger scale corporations tend to go through their budgeting processes on an annual basis, but it’s probably a better idea for SMEs to be looking to put together this sort of information on a more regular basis. The reason is size more than anything else. If something goes wrong, an SME has less of a framework set up to cover for any sudden changes, exits or upheavals, whereas larger corporations can withstand this.
It also provides more accurate readings and allows you to change things up on the fly. Instead of putting your budget together on a yearly basis, go from quarter to quarter and get a better understanding of the bottom line of your business.
One trap SMEs often fall into is blowing any earnings because they haven’t taken the time to figure out where to properly invest them for the benefit of the business. This measure (which is very much like the opposite of saving for a rainy day) is a great way of understanding what you need to do when you do start to make a little bit of extra money, and how you can spend it in a way that is beneficial to the business.
Accountants play a vital role in the success of any SME and are a great help when it comes to tax and financial statements, but it’s important that you know how to do the lion’s share of the budget yourself. In the end of the day it is your money and your reputation on the line, and budgeting means you’re the one who’s accountable.
You have the best knowledge of the expected sales and the expected expenses for the coming months, and you need to use this to your advantage when formulating a budget that suits your goals and the expectations of your small business.
In a perfect world we’d hit every budget, but this is not a perfect world. Sensible business owners always have a plan B for their budget that takes into account things that could happen that could be out of their control, like losing a client or a staff member quitting. While these things don’t have as big an impact on larger businesses, they can be ‘make or break’ for SMEs, and making sure you’re ready for every possibility can ensure you’re well placed to weather any financial storm.
So there you have it – a range of important budget tips for SMEs. When you’re operating a SME budgeting is one of the most important tasks that you have to take care off. And while it may seem onerous at times, it’s essential to get your budgeting right to ensure the success of your SME in the present as well as into the future.