When you’re starting a small business, budgeting can be one of the biggest challenges after all, unexpected costs are inevitable and income is unpredictable. Thinking big when it comes to expenses is one way to ease stress and prevent your finances from stretching too thin. With a few simple tricks, however, you can prepare for emergencies and leave some wiggle room in your business budget for a rainy day.
The first step is to overestimate your cash outflow. Start by going through your expenses to find variable costs such as utilities and supply costs. Then, inflate the amount you expect to spend on each item by a small, manageable percentage. This strategy doesn’t strain your finances, and it creates a cushion to help in emergencies. This way, if your electricity bill is unexpectedly high one month, it’s not a big deal because you’re paying less than you budgeted for water and heat.
The second step is to underestimate your income. After you forecast your small business cash flow, reduce those predictions by a set amount. If you work with clients, assume a bare-minimum income from each person. If you depend on product sales, use a number that’s lower than your baseline estimate. This strategy increases funds when things are good and keeps you safe when profits drop or clients are late with payments.
Once you start to accumulate extra cash, it’s important to make the most of it. You might deposit the excess funds into a high-yield savings account, or you could put them aside as a cushion for low-income months. Be sure to choose an option with high liquidity so you can remove funds quickly in an emergency.
As your startup grows, it’s important to reevaluate your budget on a monthly basis. By staying on top of your financial situation and continuing to pad your expenses, you can scale conservatively and make it through tough times.