4 simple steps to avoid slipping on the non-budget banana skin

Anyone running a small business already has a budget in place, don’t they? They know the bills they’ll have to pay, when they’ll fall due, how much money is in the bank to cover them, don’t they? Well, apparently they don’t, and that’s a great big banana skin waiting for them to slip on. The thing is, budget setting’s not that hard, especially with cloud based expense management software and it can help to make businesses more profitable in the long run.

Every business is in business to make money. If it’s not doing that, then it’s not a business, and has become a hobby. And whilst hobbies are great, in their place, they won’t pay any bills.

Even a business with the best budget may make a loss in any given month, but that’s OK so long as the reasons for any loss are understood, and are compensated for in the other successful months.

To set a budget that prevents you from slipping on a metaphorical banana skin requires you to look forward to the year ahead, and a good place to start with that is by looking backwards.

The previous year is the best baseline for the year ahead. And the first question to ask is: “Did it turn out as you’d planned?” If it did, well done. If it didn’t, what went wrong? If the out-turn at the year-end was better than expected, and there’s more money in the bank, then that’s less of a problem than if there was a shortfall.

If there was a shortfall, then understanding why is vital. Was it down to a particular one-off incident that couldn’t reasonably have been foretold? Or is the business running at a loss because of having too high a cost base, or an inability to move goods profitably in its chosen marketplace.

Even the surplus might mask a shortcoming. Had you seen it developing, the money might have been invested in marketing into new areas, enhancement of equipment or a change in the production process to eliminate a bottleneck, for instance – and that might be an opportunity missed for ever.

Setting a budget is simple, especially with business expense tracking software, and has these four simple steps.

1. Count your income: What’s the monthly revenue? Knowing that will enable you to decide if you’re business is viable, and if it’s not, make you think about how to change it so that it is. Think about hourly or daily earnings based on the sale of your expertise and revenue from sales of products.

2. Count your costs. These fall into two areas – fixed and variable. Fixed costs don’t change from month to month, and for a small business it will be salaries, utility bills, web site maintenance, accountancy fees, insurance, and internet access, for example. They won’t change a great deal no matter how much business you’re doing. Variable costs, on the other hand, will. Here’s where to list things like raw materials, transport, contractor fees, marketing spend – and make allowance for your tax bills too.

3. Predict one-off spends. Do you need any replacement computer hardware, tools or production machinery? You will eventually; that’s a given. Some items will tell you when they need replacing; others will allow you to choose. In the former case, building in a contingency will allow you to step over the banana skin; in the latter, you’ll be in in the driving seat about picking the right time. Computer software used to fall into this category. Now there’s less need for that because it’s possible to have a rental arrangement that allows you to access software in the cloud for a monthly fee, which means you’ll always have access to the latest versions and security patches. Apart from the obvious benefit of the software in use, this model allows for smooth spend through the year, which makes budgeting simpler.

4. Monitor and adjust: Clearly you can’t carry all of this information in your head; you need some kind of support. Old-school pen and paper is certainly no longer the way to go, and spreadsheets are becoming a bit old hat for small business expense management that need to be fleet of foot. Cloud-based expense management software like Solo Expenses and the most modern and efficient way to go. Solo Expenses, which is a free download for individual use, and has a 14-day free trial for companies, allows the recording of all business expenses quickly and simply. They can be allocated to appropriate categories, thus allowing near-instant interpretation against budget targets. And that means it offers anyone the power to be a good expense manager, no matter what size of business they’re operating.

At Solo Expenses we believe that knowledge is power, and knowledge of the fine detail of business expenses puts those running it into pole position for making the best decisions at any given moment. Conversely, far from being bliss, ignorance of the real time state of your budget could be the banana skin your business doesn’t need.

This lies in not giving the task more time than is absolutely necessary. Set your budget once a year, and use our expense tracker app and you’ll know, at a glance, how well your company is performing.

Picture: David Franklin | Dreamstime