You can’t put it off any longer. The time has arrived to prepare your 2020 budget that’s so necessary for important activities such as:
- Projecting cash flows
- Preparing for taxes
- Identifying borrowing needs
- Evaluating growth opportunities
- Assessing performance
The stakes are high, because 50% of small businesses fail during their initial five years. You can increase your chances of success by budgeting your company’s income and expenses. Here are some suggestions to help you get started:
Review the previous budget:
Your 2019 budget contains a wealth of information. The most important is the line-by-line comparison between budgeted and actual expenses and income. This exercise should point you toward any significant adjustments to your 2020 budget.
Estimate your income:
You need a realistic picture of monthly income. If your company is brand new, speak with other small business owners to build a rough mental picture of your cash inflows. Don’t overestimate, as it encourages overspending, and don’t underestimate income, thereby inhibiting growth and expansion.
Estimate your expenses:
Start with fixed expenses, typically including rent, salaries, insurance, utilities, and taxes. Naturally, these can vary from one year to the next. Prudence suggests you pay about 30% of your income on estimated tax payments. You owe these on the 15th of April, June, September, and January. You don’t want to get dinged for underestimated tax payments.
Pay attention to unexpected items:
These may include vehicle maintenance and fuel costs, office supplies, shipping costs, meals and entertainment expenses, and professional dues/subscriptions. Also, allow for events like equipment breakdowns, rent increases, and other contingencies. Put aside a contingency fund so that surprises don’t blow your budget.
Consider capital expenditures:
You may be able to increase productivity by purchasing a new machine or system. The budget should include the amount of current cash inflows that must be allocated for these expenditures versus using funds from retained earnings. You may also want to use excess capital to pay down debt and thereby lower your interest expenses. On the other hand, you might want to borrow money to finance growth or to plug a gap in your budget. IOU Financial can provide you with a business loan of up to half a million dollars and get funding in as little as one day.
Concentrate on return on investment (ROI):
When you have multiple funding opportunities, choose the one with the highest ROI that exceeds the weighted average cost of capital. You can use internal ROI calculations to see which ones provide the most benefits. The same is true for marketing ROI, in which you direct your dollars toward different channels and media.
Create a review routine:
If you don’t already have one, set up a monthly budget review process that can allow you to make course corrections as soon as possible. For instance, if your fixed costs are higher than anticipated, you might have to cut variable expenses until you can find a way to lower your fixed costs.
IOU Financial offers our Business Budget Smart Sheet to help you get a grip on your business budget. With it, you have a sophisticated yet easy-to-use tool that will help you plan and analyze your cash flows. If your budget forecasts shortfalls in the next 12 months, turn to IOU Financial for a convenient business loan that can put money into your bank account quickly. In many ways, IOU Financial is an important resource to help your business succeed.