There's no greater pleasure than being your own boss. You can set your own hours, chart your own path, and get the satisfaction of being the true owner of your successes. There's a reason that small business owners consistently report as some of the happiest people in the country.
However, there are a lot of challenges involved in running a small business as well. It's not an easy task to run an enterprise and keep it in the green. Doing so will require becoming quite skilled in the art of financial planning.
What do you need to know in order to be a responsible financial planner for a small business? Read on and we'll walk you through everything that you need to know.
What Is Financial Planning?
Financial planning is the art of getting the financial aspects of your enterprise organized. The more you can chart out the potential future of your business, the better you'll be able to make adjustments with needed spontaneity.
The more you know about how your business works financially, the better you'll be able to run it.
The core tenant of proper financial planning will be a business budget. This budget outlines your current financial standing and your expected long-term financial reality. This budget can be a huge help to you in many ways.
It can help you to get a birds-eye view of your company. You'll be able to determine where you can cut spending or areas in which you might be able to grow your revenue. Being able to make these decisions backed up by concrete evidence will be deadly important as your business gets going.
A budget will also be a necessary chunk of paperwork if you're planning to go out and raise funding. If you're thinking about applying for a loan, most money lenders will want to see a detailed budget and a number of future projections.
While the financial planning cost of getting these materials together might be slightly stressful, they can help you to save a great deal of money in the long run.
Creating Your Business Budget
How do you actually start the process of sitting down and creating a business budget? It may be tricky if you've never attempted this kind of practice before.
The first thing you'll want to get a handle on is your income and your costs. You should take the time to identify all potential sources of income for your business.
If you're already up and running, looking at what you've sold and where your profits are coming from is a great way in which to do this. The number of income sources you have will vary completely based on what kind of business you run.
Some businesses will only have one whereas others may have more than ten or even twenty. No matter how many you have, it's important to take them all into account. You'll want to either rely on your books or estimates to determine how much you expect your total monthly income to be.
After you have a sense of your income, you'll need to do the flip side of the coin: your costs. Fixed costs are those that you just can't get away from.
These include your rent, utilities, payroll costs, any expenses to your business that will remain consistent month to month. No matter what you do, this money is going to leave your wallet come time to pay the bills.
Look at these two numbers next to each other. Ideally, your projected income will be a good deal higher than your fixed costs. If not, you might need to radically consider restructuring your business.
Further Developing Your Budget
What else needs to be done to make your budget as sound as can be? You'll also need to factor in those costs that aren't fixed but will still be affecting your bottom line.
Things like shipping costs, employee pay, sales commissions, and so forth will all come out of your profits but might vary month to month.
Making a running list of all variable costs such as these can be hugely helpful. If you are low on income for one month, these costs will be important to dig through. These are costs that you might be able to cut.
As many months go by, you will be able to get a sense of just how much variation might exist in these costs from month to month. That will make it easier for you to financially plan accordingly.
Don't Forget One-Time Purchases
Over the life of your business, there likely will be situations in which you need to make purchases that won't ever repeat. You might need to invest in a large piece of equipment, or hire a contractor to re-design some aspect of your physical space.
These costs can't be left out of your budget as they can be quite expensive. They can have a big impact on your bottom line.
However, as they won't be reoccurring, you should place them in a separate category to your other expenses.
Once you have all these costs together, you can pull together your budget and see where you stand. If you still have a good amount of room between your potential profits and your costs, you should have a solid future ahead of you as a business enterprise.
Understanding Financial Planning Practices
If you have never sat down to budget for a business before, it might take you a little bit of time to get the hang of financial planning practices. The above walkthrough can help you get a hang on the basics of SMB finances.
Need more business financial planning tips and tricks? Visit the Finance section of the Bootstrap Business Blog right now for more financial planning insights and advice.
