Article Summary: Budgeting business expenses can be a good way to accommodate the ebb and flow that takes place in most businesses through the year. Ramping up during busy times and anticipating the occasional lull helps many business owners stay focused on remaining profitable throughout the year.
Here are five things you can do to make budgeting business expenses easy:
- Don't put it off—create a plan
- Stick to the plan
- Establish benchmarks and goals
- Stay on top of your customers to keep your AR where it should be
- Start saving
If you'd like to learn more about budgeting business expenses, keep reading.
Even if your business is not what is typically identified as a “seasonal” business, your business likely ebbs and flows with seasonal fluctuations—at least that’s been my experience over the last 35 or so years. Fortunately, after a couple of years at the helm of your business, those fluctuations can be anticipated; making it possible for a business owner to plan and budget accordingly.
Anticipate the Business Cycle
“Anticipate the business cycle” probably sounds like an oversimplification, but it takes discipline to know that the peak season will ebb, sometimes to a trickle, and you’ll need to at least tighten your belt a little once the peak is over. Preparing for those times when income lags (even if just a little), is an important part of running a successful small business.
Having spent many years in a seasonal business, it didn’t take long to recognize the importance of setting aside some profits today to pay for expenses during the lull before the next busy season. I also came to appreciate how critical it was to capitalize on the busy season—which usually meant more work, longer hours, and a lot more to do.
I noticed that during the peak times it was sometimes easy to rationalize spending a little extra, but it’s important to budget for your offseason expenses if you anticipate investing in your business when revenues are fat. This takes discipline and patience, but you’ll appreciate your budgeting restraint when the season is over.
Budgeting includes more than your capital resources, though. Many businesses reduce their business hours during the lulls between busy times; and some close their doors altogether. Reducing staff is another consideration and should be addressed whenever new employees are hired so they understand if are times when you regularly scale back staff—and what that will mean for them.
You might also be able to minimize business expenses by negotiating with your suppliers for a “just in time” approach to managing your inventory. In other words, if your suppliers maintain a sufficient inventory for you to access during peak times, you won’t have to carry the expense of maintaining that inventory once the peak has subsided. This will likely require you to take a more strategic approach to managing your inventory, but it could help you better budget throughout the year.
5 Things You Can Do to Make Budgeting Business Expenses Easier
In addition to anticipating the business cycle, here are five things to consider as you plan for the future:
- Don’t put it off—create a plan: Look at the next twelve months with the business peaks and valleys in mind. Create a strategy and a plan for how you will prepare for the slack times when revenues are good. Your strategy will help you stay focused in the heat of battle.
- Stick to the plan: If budgeting for future expenses is an important first step and creating a plan is the second, you will need to stick to the plan for it to be successful. I’m not convinced that means a rigid adherence to a plan if situations change, but make sure you consider the plan and the ramifications of deviating from it in those situations.
- Establish benchmarks and goals: Poor cash flow management is one of the biggest causes of small business failure, so establishing practices and strategies for properly managing your cash flow should be a priority. Make sure you’re on top of your cash flow metric and consult with your accountant CPA if you’re not sure of the best approach to take.
- Stay on top of your customers: If you bill your customers by invoice and offer them 30 days to pay their bill, it doesn’t very long for a slow-paying customer to eat up all the profit you may have had—making your busy season less profitable and putting the slower times at risk. To speed things up, you might offer your customers an additional discount to pay today or have a credit-card on file you can charge against at the end of the month. The goal is to avoid the inevitable cash flow challenges associated with slow-paying customers. The quicker you have access to that cash flow, the easier it is to manage.
- Start saving: Setting aside a little cash for a rainy day doesn’t just apply to your household budget. There are a lot of unexpected business expenses that could be addressed with some money in the bank. A good goal to shoot for is three to six months of operating capital, but anything is better than nothing. Some of the smartest business owners I know regularly set aside some of their profits to ensure they have at least a three- to six-month cushion should something unexpected happen.
As we get ready to start the next year, there isn’t a better time to take a look at how you did this year and project a budget forward based on this years results.