There are two types of businesses when it comes to finances. There are those that can make a budget, stick to it, and it works. And then, there is everyone else. Of course, if you fall into the latter category, there are a good few reasons why your budget never quite works out the way you plan. In this guide, we’re going to go through some of the major factors you need to watch out for. Take a read, and see if you recognise any of these common issues.
You don’t budget properly
First of all, are you budgeting well? Do you know your incomings and outgoings, and are you allowing for every last thing? There’s a lot to think about, of course. There are your bills, insurance costs, and rent and wages. There’s employee benefits, and monthly subscriptions to services, consultants, and industry magazines. And, we haven’t even mentioned your company car payments or fuel costs yet, either. When you draw up a budget, it is vital that you include every last thing. And, don’t forget about special occasions, too. Christmas work parties and staff training or trips can all cost an enormous amount of money. So, you should be including them in your monthly savings when you draw up an annual budget.
Your expenses are higher than you think
How much do you budget for your expenses? Are you sure it’s enough? Take your utility payments, as an example. The trouble is, utility companies change the price of your energy as and when they want to, assuming you are using more than you should. And, they don’t necessarily have to tell you. You might think that £1000 per month will cover everything, but what happens in the winter time when your heating bills go up? They will take more from your account to cover the extra, which might leave you short in other areas. It’s the same for other expense areas in your business. So, it’s always a good idea to keep on top of your essential spending every month and leave a little more money aside for them. This way, you will always have enough to pay, and you won’t end up with a budget hole.
You don’t adjust it when you need to
As we mentioned above, always adjust your budget as and when you need to. It’s no good laying out your spending and income at the start of the year and leaving until the next. All your payments will change, and you might lose or earn more income. Whenever something changes, make sure you adjust - it’s the only way to keep your business finances afloat. It’s so important, especially when things are tight. If you don’t adjust, you might suffer an unexpected hit.
You don’t pay enough attention to your expenses
It can be tough to keep on top of your budget when the prices of things fluctuate so much. Again, you need to allow for those fluctuations and adjust your budget as and when you need to. Take petrol and diesel, for example, and let’s say you run a small fleet of delivery vehicles. One month you might get by on £1500-worth of fuel, but the next, you could see that go up to £2000 - even if your distances are the same. There are other things that work like this to think about, too. Your phone bill, for example, can have dramatic differences on a monthly basis, that you may not even notice. It might only be £100-200 per month, but over the year, that soon adds up and eats away at your profits.
You don’t run a surplus
There are lots of things that can happen in business that you don’t expect - and almost always, they will cost you money. If you don’t run a surplus or have anything put away for a rainy day, then it’s going to have a dramatic impact on your budget. Make sure you are saving as much as possible to help you fill those gaps. Keep it separate from your main business account, and always top it up as and when you can. It won’t take long to build up a decent amount of surplus, but at the same time, it won’t take long to spend it! Car repairs, emergency maintenance on your premises - all these things and many more can cost a fortune. Without a surplus in place, how can you expect to pay for them without impacting on your everyday business?
You don’t understand your industry standards
Every business is different, but some are more similar than others. You should be able to find a rough idea of revenue percentages for the industry you serve, and use this as a guide. Try your local library, or even check the HMRC website for some statistics. Small businesses can be more difficult to judge, of course. There is a lot more uncertainty about how much money you will bring in, and how much money you will save. Plus, of course, small business owners don’t have the deep pockets of their larger competitors, to see them through tough times.
You don’t have an accountant
Finally, if you are struggling to control your budgeting, and haven’t got an accountant - why not? Hire an accountant or a financial director and you will have a much tighter grip on your finances. They will save you an awful lot of money, from your tax payments all the way down to your laundry bill. It’s not important for an entrepreneur or business owner to know everything - and in many cases, it’s best to stick to what they do best: making money. But, regarding making savings and getting the most value out of your business, it makes sense to hire a professional. Not only will they be able to cut your costs, but they will also be able to advise you on maximising your profits. That gives you a better bottom line, a better top line, and more profit to protect your business for long into the future.
Source: Vine 5