How well are you managing your business financially? The level of success and sustainability depends on your financial infrastructure. Good bookkeeping facilitates favorable tax savings.
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Strategic Planning is Important
Operating a business takes much more than having a particular expertise in an area of service or development of a product. Passion is generally the driving force behind the decision of most entrepreneurs. The next step that some take is to form an official LLC or C-Corporation, etc. Well taking the time to develop a strategic plan, should be one of the initial steps in the process.
It is very important to do some research about your particular industry. What problem are you trying to solve and for who? It is important to know early on whether or not there is a ready market for your product or service. Now, people are oftentimes willing to purchase but whether they have the purchasing power or not is another thing to consider. The economics of it all.
Another crucial part of your strategic business planning should include a budget or cost analysis. Have you ever heard the quote “count the cost”? There is much power in running the numbers first. Before you even decide on pricing your product or service, do the math. Numbers don’t lie but rather, help you to make some really wise financial decisions.
After all, would you take a road trip to a city you have never been before without a map or in the present time, a Global Positioning System (GPS)? Even a trip to the supermarket requires some idea of what you can spend. If you are not tracking your spending or you do not have a good tool to measure your net income, how can you accurately report the performance of your business?
Why A Budget Is So Necessary
When you fail to create a budget for your business, I view that practice as operating blindly. It is crucial to know your inflows as well as outflows. In other words, revenue versus expenses and whether your business is profitable or bleeding out valuable resources. It’s crucial to know when you will hit your break-even point and then start to make a nice profit.
Understanding your fixed versus your variable costs in a big part of forecasting. Some costs you will incur whether or not you made a sale. These fixed costs are necessary in order to produce the product or service so it’s important to plan for it. Paying estimated taxes is also key; therefore, it will be wise to budget for your monthly/quarterly tax payments.
“A budget is telling your money where to go instead of wondering where it went“
–Dave Ramsey–
Learning To Fly The Plane In Mid Air?
As a Business Coach & Consultant, I generally work with a lot of aspiring entrepreneurs. Every so often, I come across business owners that have been operating for one year or more without a budget. Most of them try to do the bookkeeping themselves as a means to keep costs down. The reality is that they oftentimes lack the necessary skillset to do so successfully.
On the contrary, bookkeeping mistakes or lack of adequate record keeping quite often ends up being more costly. Problems at tax time is almost always an issue that results from bad books. As part of the initial consultation with clients, I introduce the concept of a budget early. I think it is a fundamental business principle.
Success Rate of Small Businesses
As mentioned before, turning a profit is the ultimate goal for small business owners. According to statistics from the Chamber of Commerce, at least 18% of small businesses fail within the first year. Data from the Bureau of Labor Statistics, reported that at least 50% of businesses fail after five years.
Geographic location, a ready market and amazing products or services are just part of it. Numbers and how you project costs, is as much a part of the success story as any of the aforementioned aspects.
Think about how better able you will be to make important financial decisions such as strategic marketing and advertising campaigns. These costs are necessary to further your brand and grow your business. You also want to allocate funds in order of priority, from necessities to frills. Eliminate wasteful spending as much as possible.
Setting your profit goal and crafting a well thought out plan to facilitate the achievement of it, is a great starting point. Remember to be as comprehensive as you can in order to achieve your desired outcome. Do as much research as possible so that your budget can create the best picture for you.
Automations Through Tools & Software
At one time, a paper budget was the way to go but with the advancement of technology, there are better options. From the most basic to the most complex situation, there are solutions. Now, most business owners would confess that they are not good with numbers. That’s okay because there are experts out there who are, and they are ready to help.
Many of the accounting software packages have a budget module already built into it. This makes for better integration and data flow. Just think that your actual numbers can flow through and compare against your budget number to give you a variance. The power tool of financial decision-making, right in your hands as a business owner.
Here are a few budgeting tools and accounting software that you may want to look into:
- Quicken
- Capterra Small Business Budget Template
- Quickbooks
- Mint
- Freshbooks
- Xero
Disadvantages of Operating Without A Budget
- Risk of spending more than the business is earning.
- The inability to track expenses accurately by categories.
- Inability to project or forecast for the future.
- Difficult to determine what the business can actually afford, hindering growth.
- Lack of the sense of financial security with inability to scale.
Once again, an operating budget may prove to be one of your best decision-making tools. it will definitely serve as the financial compass of your small business. Don’t start or try to operate without one.
A business strategy that includes a solid plan for managing your money is a recipe for sustainability. Proper accounting and bookkeeping which begins with your budget, will position your business towards the direction of success.
For assistance with setting up your budget or designing a template for your specific business needs, please schedule a call today!
https://calendly.com/shermalisa19
Also, if you’ve enjoyed reading this or you have found value in this article, please leave me a comment and share your feedback. I always appreciate hearing from my readers