create balanced budget for your business

Follow these Ways to Manage Income and Expenses Properly

A properly established budget can be a valuable tool when it comes to managing business expenses. It can be difficult to make meaningful estimations of income and expenses when business conditions are fluid, however. The following tips can help you gain an idea of how to make a sensible budget for your business.

1. Monitor your cash flow on a daily basis

Until a few years ago, only large companies with access to sophisticated tools were able to efficiently keep an eye on daily cash flow reports. Now, however, these tools are available to small and medium-sized businesses, as well. You get to easily monitor how much money comes in each day, what your labor costs are, and what bills you need to pay. With all this information available to you, you lower your risk of getting stuck with cash flow problems.

2. Familiarize yourself with your accounting

While you can use accounting software to easily deal with expense management, budget management is a different matter if you are not an accountant. It’s a good idea for business owners to do their accounting manually, with ledgers, for a few months, to get a feel for the way the money comes in and is spent. Doing the accounting manually rather than using an automated system can be a great learning experience, offering you insights into how money works in your business.

3. Use data to make revenue forecasts

At many businesses, making revenue forecasts is a simple matter — accountants take the previous year’s revenue, and often add 10 percent. These forecasts can turn out to be erroneous, however, due to many variables including changes in market conditions and operating margins. For assistance in preparing your revenue forecast, tap into outside resources for guidance or members of your board.

4. Prepare for contingencies

Even when you do use accurate economic forecasts, you still don’t account for every eventuality. What do you do when a major client leaves, or when production unexpectedly shuts down due to malfunctions? It’s important to think of at least five different ways in which things may go wrong, and work out how probable these challenges may be. You should then create contingency plans for what to do. Building up cash reserves is one of the most important ways in which to prepare.

5.  Budget for fixed expenses

When a company is successful enough to grow, its fixed expenses don’t stay predictably fixed. If you need to raise production, for instance, your utilities go up, as well. You may also need to pay for overtime and extras such as feeding your workers during late nights. When you budget for your fixed costs, it’s always a good idea to add an additional line item for contingency expenses. This will allow you to track the added expenses.

6. Be slow to hire new employees

Many businesses make the mistake of adding to their staff too early when they grow. When market conditions dim and business shrinks, they are left with an inflated payroll, and no way to pay it. Downsizing is rarely as easy as taking on new employees. When you are growing, you may want to consider outsourcing rather than hiring for certain tasks. It could save you time and money, and allow you to scale more quickly.

The Bottom Line

It’s important to gain an intuitive feel for how contingencies occur, how cost overruns happen and how cash flow works. Understanding your budget should be your number one priority when you run a business.

About Universal Funding

Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.

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