From proactive bookkeeping to regular budget revisions, check out these tips from Better Business Bureau Serving Greater Cleveland to improving your budget management skills as a small business owner and operator.
By Better Business Bureau Serving Greater Cleveland
Are you operating on a bootstrapped budget? Many small business owners are working with the smallest profit margins. With years of economic uncertainty and recent recession fears, many owners are finding that success can be a financial balancing act. Better Business Bureau (BBB®) knows this and is providing the following tips for businesses looking to improve their budget management skills.
1. Bookkeep Proactively – According to LinkedIn, lax bookkeeping is one of the most common mistakes small businesses make. Businesses with disheveled accounting may needlessly spend money on tax penalties and late payment fees. Owners who are having difficulty managing business accounting on their own should invest in bookkeeping software or seek the guidance of a certified public accountant (CPA) for help. The short-term cost can help prevent long-term expenses.
2. Use Technology and Smart Phone Apps – Low-cost apps and software are a business owner’s friend and can help with everything from point-of-sale to payroll and payment processing. Websites, such as Nerdwallet, have excellent lists of small business apps to consider.
3. Forecast Your Cash Flow – Forecasting should be routine for anyone that knows the ins and outs of budget building. Small businesses, just like their larger counterparts, run on business cycles. For example, in retail, certain holidays like Christmas will be best for business. For an industry such as tax accounting, the busy season will typically be in the February to April months.
4. Make Sure Marketing Makes Sense – Some types of marketing and advertising have a higher return on investment (ROI) than others for different industries. Owners should concentrate on finding marketing channels that pay for themselves, rather than wasting money using disjointed marketing tactics. For example, short-form videos, influencer marketing, social media messaging, and search engine optimization (SEO) are the highest trending ROI marketing strategies for 2023, according to HubSpot.
5. Revise Budgets Regularly – Business costs aren’t static, and neither are income sources. For example, a business may have to hire more employees over the year to respond to growth and vice versa. Responding to changes by revising budgets and forecasting accordingly will help prevent financial surprises later.
6. Understand Risks – All businesses encounter long- and short-term risks. Workplace injury, theft and natural disasters are just a few catastrophes that a company may face. Don’t allow risks such as these to catch management off-guard. The damage to company finances could be made worse if a small business contingency plan doesn’t exist at all.
7. Separate Personal and Business Finances – Owners must keep a business as a separate entity from themselves, especially when it comes to bank accounts. Owners should request a paycheck that is separate from other costs too. Keep purchase receipts and also keep track of the times you purchase personal items for business purposes and vice versa. In the long run, this will make it easier to balance business and personal finances.
8. Look for Contingency Cuts – “Contingency cuts” are line items that can be cut from a budget for a limited time in a financial emergency. For example, a team can agree to defer paychecks until a business is in a better financial situation, or marketing campaigns can be scaled back. Neither of these is an ideal situation, but they can be a way to keep a business afloat during dire times.
9. Don’t Spend Prematurely – The goal of every business should be growth. This can be a double-edged sword, however, since business owners often fall prey to something called “premature scaling.” As LinkedIn summarizes, “premature scaling refers to an effort to grow a business at a rate faster than they can afford to sustain.” Rapid business growth can be very dangerous as it sometimes provokes managers to do “too much, too soon” such as hiring too many people, offering an extensive product line or acquiring too many customers. Managers should focus on optimizing their operations and also consider whether recent high cash flows are a sustainable model or just a passing phenomenon.
10. Don’t be afraid to ask for help – Whether it’s for a discount from a vendor or simply for tips from a trusted advisor, asking for help should always be an option, especially if owners are feeling overwhelmed by a tight budget or a negative turn of events.