Budgeting your business funds can be challenging, especially if you are a new entrepreneur. That is why Chief Financial Officers (CFO) services abound offline and online, with professionals offering to do the budgeting for you. The struggle is real because money is an important issue when it comes to business. So, you cannot simply let your accounting left by the wayside. This department is a crucial part-and-parcel of your business and something that you need to invest on.
Whether you are a new or seasoned entrepreneur, you know how important accounting is to run and improve your business. Budgeting your business funds is not easy to do, given that there are so many things to consider when doing it. One mistake can lead to your enterprise’s downfall, and for sure, no entrepreneur would want their business to fail.
Some business owners may choose to do everything themselves, and others may want to view their CFO services. Whatever your choice is, you must go with one that fits your needs and budget.
If you have been thinking of ways to improve how you budget your business funds, here are some tips to help you out:
1. List down all your monthly and annual expenses
Even if you are running a household, you need to manage your monthly and annual expenses, right? So, if you need this budget planning strategy for the household, even more so that it is needed when running a business. It is because cash flow is the bread and butter of any enterprise; so, if you fail at managing it correctly, then you are running your system on rocky foundations.
Before you do any particular budget management strategies, go with the basics first. List down all your monthly and annual expenses, and put down the amount for each item. By doing this, you get to keep track on whether you are above or below your income. It is highly crucial to know since you don’t want to be blinded by great sales, and then you end up going bankrupt. All your hard work has been put to waste, and for sure, you don’t want that to happen.
So, before you install expensive software or hire an entire department, list down all your monthly and annual expenses first. Do not miss anything, no matter how small the expense is. The more transparent you are, the better it is for your enterprise.
If you find out that you have more expenses than what you earn, you can start auditing your business. Do you need all these expense items, or can you go without some of them? These are some of the questions that you can ask yourself and your team once you have listed down all expenses.
2. Consider your KPIs
KPIs (Key Performance Indicators) are crucial points that can help you get a realistic picture of your business. These indicators allow you to see the fine details of your business while encouraging you to see these small details in the context of the big picture. Most large companies have very stringent KPIs, and these prove to be helpful to any enterprise, no matter how big or small.
Some of the things that you can consider when preparing your KPIs are the following: accounts receivable, accounts payable, turnover rate, equity, human resource expenses, marketing expenses, monthly cash flow, and monthly expenses. When these items are analyzed, you will quickly see how these are affecting your business.
3. Build a contingency fund
Any business needs an emergency fund to help the enterprise during challenging times. For sure, you don’t want to delay your staff’s payroll even if you are going under for that month. It is highly unethical and illegal to do so; so, for sure, you don’t want to risk doing that.
The amount you put into your contingency fund depends on your needs. If you are running an employment agency, then, for sure, you need to have a large emergency fund to cover for payroll should the hiring company fails to pay the employees. If you are renting your place, you need to set aside at least six months’ worth of rent to cover for times when you can’t afford rent.
These are some of the things that you must consider when building a contingency fund. Of course, you don’t want to hold on to loans when your business fails, so you need to have a reliable back-up.
Business budgeting is a crucial aspect of financial planning. It can save you tons of time, energy, and resources when done properly. But you cannot do this on your own because you need someone knowledgeable enough to support your enterprise during this planning stage. You can hire a financial planner during this time that you need to budget your business funds since it is costly to hire on in-house. It is an investment to take that you will seriously be thankful for life.