We are already aware of how 2021 has been a challenging period for all sectors. The aftermath of the Covid-19 outbreak and the pandemic challenges have convinced entrepreneurs to rethink their business plans. Given the circumstances, the need to plan out an unequivocal budget is now more crucial than ever. While it’s true that there are uncertainties and no one can anticipate what the future holds. Still, proper budgeting well in advance can pave the way for success and help companies achieve qualitative outcomes in the long run. A budget is simply a roadmap that guides entrepreneurs to allot the funds and map out the monthly incomes for the investment decisions in upcoming years.
Many entrepreneurs believe there might be no need for a budget in the earliest phase. Still, budgeting is a viable business activity that ensures the long-term survival of a startup. However, considering that the new startups don’t have any history of finances, the best way is to make an educated guess on the profit or loss statement. Without this, it might be pretty challenging for startups to get through the first couple of months. Building an accurate budget requires some time, discipline, and fundamental finance and accounting acumen.
A crucial point for startup businesses
Before delving into how to craft a successful budget for new businesses, it is relevant to note that an estate plan is a must for every business owner. Estate planning for business owners focuses on the provisions of their personal and business assets. For instance, if you operate a sole proprietor business, your business and personal assets are likely the same. Individuals who are first-time founders and don’t want to depend on accountants entirely should consider hiring a competent tax professional.
However, ensure that the selected tax professional has an estate planner certification before taking legal or fiscal measures. The estate planning certificate enables tax professionals to obtain in-depth knowledge about law, accounting, and finance while developing technical skills. That way, entrepreneurs will not have to worry about tax strategies, wealth management, and other implications. With a trusted professional, the future of the business always remains secure. We recommend you Ageras to find a competent and experienced tax professional for your business. Ageras is a trusted platform where you can find tax advisors, CPAs, bookkeepers and other financial experts for your business in no time. Without any commission involved, Ageras helps you finding the right professional according to your needs and it is the right solution for you if you are still typing “tax return preparer near me” in your browser.
Now, do you wish to make 2021 the best year so far for business finances? Then, continue reading to find out exciting budgeting ideas to achieve the financial balance:
Outline goals and objectives
Before preparing an operational budget, highlight business goals and targets. Though every entrepreneur feels enthusiastic and dreams of building a successful business empire, developing realistic goals is imperative.
First, jot down all the business priorities in one place. For example, these can be increasing revenue, broadening the customer base, or expanding brand awareness. After listing, classify these targets into two categories known as short and long-term goals to draft better strategies.
Plan out strategy
Once done with the above step, create a workflow and plan out strategies to achieve these targets. Finally, figure out which of these objectives are indispensable and which are just better to have. For instance, an entrepreneur might want to knuckle down to one business process at an early stage.
However, that means tough calls and complex trade-offs for other business areas. Apart from this, every founder should also consider building a startup financial model for future projections as the business grows.
Evaluate every single penny to ensure that the business expenditures do not transcend the revenue targets. Entrepreneurs should consider pondering over questions, such as which business areas might require the most cash? What might be the expected return on investment if they spend the most on a specific business area? Which costs might keep on recurring?
The answers to such questions will guide the business owners on allocating the capital and funds in a budget. To be preeminent and prevent cash shortfalls, include only essential business expenses and cut down all the remaining discretionary ones.
Calculate fixed and variable costs
Review and make strategic considerations to create a budget that works in the company’s best interests. Then, figure out fixed costs, one that remains relatively the same every month. These may include:
- Mortgage payments
- Office equipment
- Business insurance
- Website and other professional service fees
In contrast, variable costs keep on changing with the number of sales and production quantity. Therefore, take into account the following variable costs as well:
- Sales commission amounts
- Raw material
- Income tax
- Advertisement and freelance service fees
Follow up the budget
Budgeting is not a once-done project. Instead, it requires frequent updates and alterations according to the trends and business needs. Building a budget and never giving back a peek is undoubtedly a surefire way to put the startup in a risky position. However, entrepreneurs are free to formulate composite versions of a budget.
For instance, they can create a budget based on some significant investment decisions. That way, founders can project the growth of the startup. Or entrepreneurs can give a try to craft a budget based on unsuccessful business decisions. In this manner, they can better understand financial risks, create backup plans, and prepare ahead of time.
Factor in ‘What-Ifs’
Circumstances change, and this is quite evident from March 2020 how every sector closed down because of the deadly coronavirus. Indeed, no one imagined this would happen. Therefore, business owners should brace themselves for every type of situation that may arise.
Now, this doesn’t mean only negative ones. On the contrary, some opportunities might come up. However, it may require substantial investment in various areas such as employees, office equipment, marketing, or sales. For example, investing in hard drive shredders is an effective way of protecting yourself from cybercriminals because all electronic data gets shredded into small bits, and as a business owner, securing data should be on top of your list. Thus, forecast and get ready for any possibilities. If not, business owners might need to go to extremes such as unnecessary debt.
Sustaining and growing a new startup requires a robust business plan and solid money management skills. One other piece of the puzzle is a distinct and well-marked budget. Budgeting is a versatile option in this ever-changing financial landscape that lets small-scale businesses get acclimatized to the latest changes and predict cash deficits. With a realistic and operational budget in place, business owners can put their startups on a sound footing at an initial stage.
All entrepreneurs need is to stick to an agile approach and stay focused. Also, it is imperative to try out new and trending ideas and opt for those financial practices that help businesses attain a healthy financial balance all year round. Those businesses that already have clear-cut goals and an explicitly defined budget rest assured will always remain ahead of the curve.