Operating a small business on a budget and properly managing cash flow can be difficult even in the best of economic times – especially if your budget is tight. Unknown variables can quickly alter your plan and impact your cash coming in the door. Unexpected events like a client going out of business, a vendor raising prices, or even losing that key employee can cause a dramatic effect on your business finances.
That’s why having a solid budget in place is critical to your business’ continued operation—it helps you manage costs and determine profit goals. Since many small businesses and startups are bootstrapping their growth without the help of loans or investors, a budget designed to keep costs down is essential.
Here’s a look at six budget tips designed to help you successfully run your small business on a shoestring and a dream:
Create Accurate Sales and Revenue Projections
Sales and revenue are the building blocks of any business budget. The key thing to remember here is not to overestimate incoming cash. Sure, you’re aiming to double sales this year, but the odds of that happening may be slimmer than you think. The best way to project sales and revenue for the year is to look at what you made last year. Be conservative in your projections—better to be pleasantly surprised than have cash flow issues.
As you’re formulating what you can expect to bring in each month, keep in mind that your business and industry may experience predictable up-and-down sales cycles. Almost every industry has busy and slow periods during the year, and that needs to play a role in your projections. It should also play a role in budgeting your time—use any pockets of downtime to ramp up other efforts, like creating new marketing initiatives that can fuel sales growth.
Take a Guerrilla Approach to Marketing
For small businesses running a lean ship, it’s important to find cost-effective ways to get your business out there and in front of your target customer. There are a ton of low budget marketing ideas such as running a Facebook contest or implementing a unique customer referral program – like Uber did:
Another great low-cost marketing tip is to catch the tidal wave of video. Video marketing is a great way to reach your audience in a more personal way. The best part is, you don’t need a big marketing budget to make an impact with your online content. In fact, Wistia has a great how-to article on using your iPhonene to make killer videos.
Keep a Lid on Expenses
While you have to spend money on sales and marketing to make money, unexpected or unnecessary expenses can be a budget-killer for small businesses. Some small businesses have widely varying expenses, especially if they work on a project-to-project basis or with a lot of different clients. Every client and project is unique and it’s often difficult to predict project cost overruns – often times there are costs that just can’t be anticipated. That’s why, when you bid for work, it’s wise to err on the side of overestimating expenses slightly. If you do wind up going over, you’ll have compensated for that.
Also, plan for large capital expenses realistically and early. If your business relies on expensive equipment, don’t go overboard and anticipate conservatively when you will need to replace or service any of it. Although it’s often the case that your biggest expenses occur when you least expect them, you want to try and avoid that.
Planned expenses like office renovations should be carefully timed and budgeted to avoid causing cash flow problems or creating a financial burden for the business. Remember to ask yourself, how does this expense grow the bottom line? If your budget is tight you may need to hold off on any unnecessary expenses.
Make Strategic Investments
Keeping a tight budget isn’t just about saving money – it’s about making investments that will move the needle for your business. So, when it comes to hiring, filling a key role in your business may be a bigger investment, but may also increase productivity in the long run – much like this example from The Profit. Likewise, keeping the company snack shack full each month may seem like an unnecessary expense – but it could be the key to keeping your best employees happy and engaged at work.
Let Technology Do the Heavy Lifting
No doubt you know that there are many tools for managing your personal finances; small businesses can take advantage of tools like those too. Expensify for example, is a free tool for creating expense reports; Xero is an online accounting software designed for small business owners (and accountants) and is available online from your computer or mobile device. Business finances and cash flow are updated in real time and Xero integrates with hundreds of third-party business applications. And there’s always the standard bearer, QuickBooks Online, from Intuit.
There are also a number of cloud-based sales and marketing apps that allow you to stay organized and grow sales without growing your headcount. Leveraging tools such as marketing automation and CRM software can give your business the ability to track what marketing tactics are driving results and which ones aren’t – helping to get the most out of your marketing budget.
Update Your Budget Each Month
Sure, you make an annual budget and estimate expenses and revenue. But your budget is constantly changing because your clients change, purchases change, cycles change – just about everything is subject to change in the world of a small business. Regular budget revisions give you a chance to reassess your projections and make smarter financial decisions for your small business.
The SBA recommends a small business’ budget be dynamic—updated and changed as the business changes. As the economic climate evolves, so will your business. You’ll want to keep adjusting your budget based to match your growth.