As a self-employed business owner, creating a budget is one of the most important things you can do to grow your business in a healthy way. While you might assume an annual budget is the best approach to financial planning, monthly or quarterly budgets can also be useful for keeping your financial situation under control too.
With these tools, you can manage revenue, expenses, profits, cash flow, and financial goals for your business, either in consultation with a professional accountant or by using financial software such as QuickBooks Online. For the self-employed, advice and tips on small business budgeting can help you make wise choices.
Include Your Whole Self-Employed Business Team in Budgeting
While you may have the final say over your small business’s finances, it’s wise to include your team as you prepare a budget. Everyone who’s accountable to the budget should get some input into your decisions — after all, they can offer unique insight.
For example, if you have a warehouse, your warehouse employees can help you decide if it’s more useful to budget for a new scissor lift, or if you should invest in inventory management software. When your employees are part of your budgeting process, they feel connected to your business goals.
1. Focus on More Than Individual Line Items
All too often, changing one line item on your budget has repercussions throughout the document. If you hire more employees, for instance, their salaries aren’t the only new expense you have to budget for. You also have to increase the benefits and payroll taxes. While handling payroll online can simplify the process, so you don’t incur an increase in administrative costs, it’s important to think about the financial ramifications of any change you make to the budget.
2. Make Sure You’re Covering All Expense Categories
Your business expenses fall into one of three basic categories: fixed costs, variable costs, and one-time expenses. Fixed costs include:
- Mortgage or rent
- Salaries and benefits
- Utilities, including cellphones
- Internet expenses, including web hosting
- Licenses, certificates, other government charges, and bank fees
Variable costs are those expenses you can’t predict with absolute certainty from month to month. These typically include:
- Raw materials
- Legal and professional fees
- Fees and wages paid to contractors
- Sales commissions
- Advertising and marketing costs
- Travel, including attendance at conferences, seminars, and professional or trade events
- Office expenses, such as printing
Also, sometimes you need to make a capital outlay for important office equipment, such as computers, furniture, software, and other tech items, or manufacturing equipment. Track your expenses closely, and accurately, using QuickBooks.
3. Pay Yourself Appropriately
As a small business owner, it’s all too tempting to pour your salary back into your budget — especially when you’re trying to get a new enterprise off the ground. Some new business owners feel guilty about paying themselves, and others feel it’s more important to use that money elsewhere.
Remember, that you’re an employee of your business as well as an owner, and you deserve an appropriate salary as much as your employees do. If you choose to sell your company down the line, your refusal to take a salary can make the business’s history seem financially troubled, even if that’s not true.
4. Pay Close Attention to Time Estimates
If you pay employees on an hourly basis, budgetary glitches can appear if you underestimate the time that certain tasks take. For example, if you assume that taking manual inventory in your storeroom is a two-day task and it takes four days, that’s going to cost you twice as much in wages. Underestimating time can affect delivery schedules and throw off your team’s momentum as they aim for unrealistic deadlines.
Even though you don’t have a line item on your budget for time estimates, being realistic about the time needed to complete tasks can help you meet your budgetary goals. One helpful tip is to assign an extra cushion of time to each project (including when you give delivery estimates to clients).
5. Treat Your Budget as a Living Entity
If you expect to create a budget once a year and never refer to it again, you may be surprised. Your budget doesn’t remain static, even from one month to the next. Instead, it evolves as your business grows and with the constant ebb and flow of sales and expenses. Seasonal trends affect your budget, as does your organizational and financial efficiency. As your costs change, your budget should change as well.
As a small business owner, staying on top of your budget and making regular, frequent adjustments to it is key to having a clear understanding of your company’s financial situation. Every time you visit and tweak your budget, you put yourself in a better position to make smart financial decisions in the immediate future.
6. Watch Out for Wishful Thinking
If you create a budget based on your best-case-scenario projections of sales or other income, you may be setting yourself up for disappointment. Use past results from as far back as five years combined with realistic, conservative future projections to create your budget. As you compare past budgets, look for fluctuations in certain line items, and try to account for them. Using these numbers provides a solid basis for establishing your next budget.
7. Choose the Right Tools
Having the right tools on hand lets you approach any task professionally, whether you’re baking cheesecakes for your café, shooting a video to promote your online store, or creating a budget for your small business. Sure, you can rough out a budget using a basic spreadsheet program, but professional accounting software such as QuickBooks gives you a leg up on the competition. With professional accounting and budgeting software, you can compare your current budget to previous ones, and crunching numbers to see what adjustments to make becomes a breeze.
8. Overestimate Your Expenses
Many small businesses move from one project to the next, and each one is different. If this sounds like your business, you know that predicting expenses on a project-by-project basis often involves a bit of guessing. While large companies often have a healthy financial cushion to fall back on, your small business may be more dramatically affected if you fail to anticipate and budget for expenses.
To counteract that possibility, overestimate expenses, especially those flexible — and sometimes unpredictable — expenses attached to client-driven projects. Doing so builds a hedge into your budget, so you’re prepared for unanticipated expenses.
9. Keep It Simple
If you’re a very hands-on small business owner, you may find yourself tempted to dive deep into your line items as you prepare your company’s budget. Try to resist this temptation. Instead, your budgeting is likely to be more helpful if you focus on the category level. Think about office supplies in general rather than trying to determine how many pencils you need. By keeping things simple, you make it easier to track your expenses through the month or quarter.
10. Look for Places to Cut Costs
Even if your income is fairly steady, keeping your costs down is always a smart idea. Perhaps you can find vendors whose prices are lower than you’re currently paying, or you could shift to bulk purchasing to save money. Focusing on streamlining your processes through effective implementation of time management skills could net you savings as well.
Maybe you could get the same advertising bang for your bucks by shifting some of your marketing outreach to social media. Your employees also may have some great cost-cutting ideas, so consider asking for suggestions or even holding a contest with a nice prize to the person with the most cost-effective idea.
11. Invest in Your Business
Every dollar you spend is a dollar you don’t get to keep, but that doesn’t mean you should be afraid to make some investments into the growth of your business. Even if you’re on a tight budget, it’s not a bad idea to spend money as long as you believe you can get a return on your investment.
Examples of good expenses might include registering for a training seminar or industry conference. If you think you can turn the cost of training on new industry software or sales techniques into significantly higher sales through increased customer acquisition, it’s worthwhile to invest the money into your business. Attending a conference where you can make dozens of valuable contacts and talk to a number of potential new customers is also a wise use of resources. This might also be the time to test out a small local advertisement or marketing message to find out what kind of response you get.
12. Keep Everyone Accountable — Starting With Yourself
A budget is only as good as your ability to stick to it. As your business grows, you end up trusting more and more people to stay within their department budgets, but real accountability starts and ends with you. If financial discipline doesn’t come easily to you, you might ask one or more of your employees to keep you accountable. Hold the line on your employees’ accountability as well, taking it seriously if anyone goes over budget.
Reviewing your budget periodically with all employees who have the authority to spend money on behalf of the company can make sure you’re all on the same page.
Other Budget-Friendly Tips
Being an effective bootstrapper means identifying ways to utilize existing resources to maximize business impact. Other simple ideas that could save you money or grow your business at almost no cost include:
- Take advantage of social media. Create a Facebook page or Instagram profile, then upload weekly videos where you provide free tips and advice. People love getting things for free, and those people could turn into paying clients down the road. Learn more about the benefits social media marketing here.
- Try getting a bulk discount on bundled business services. If you need solutions for bookkeeping, invoicing, payroll, and expensing, work with one vendor tin an attempt to get a lower price purchasing them all together.
- Run a promotion offering a discount on your business services. Companies use these loss leader strategies to obtain new customers all the time. Many customers who try a product or service for free turn into regular clients.
- Shop around for the lowest price. If you need to upgrade your technology, collect bids from several vendors. Make them aware that you’re talking with other companies to get the most competitive price.
Working with smart accounting software helps you stay ahead of the curve when it comes to budgeting. With QuickBooks Online, you can organize your business finances and stay ready for tax time. Try it free for 30 days.