Budget Planning for Small Business

Budget planning when you own a small business can make all the difference between whether your business really flies along, just muddles through, or fails.

Making a plan about what you want to achieve in sales, and what that will take in costs to deliver those sales, along with asking a few intelligent questions will prepare you for the unexpected.

When you first start out planning a budget, the expenditures for a year in advance can be difficult, because you really don't have any trading experience, and don’t know what to expect. Coming up with some effective strategies for estimating start up costs is a good idea.

Once you’ve established the overheads that you plan for the next year, then you can think about planning sales revenue. From the planned sales, direct costs can be computed, and you can begin to form an idea of what advertising budget you might need to garner those sales.

Budget planning is really business planning by another name, but more focused on the monetary items. It does help though if you have a clear and strategic framework to operate in.

Everything should be included in your financial budget including if you plan on bringing more people on as staff, appointing consultants or advisers and leasing or purchasing new equipment for your business.

As you plan your required expenses you will come up with how much sales revenue is going to be needed in order for your small business to see a profit. It is important to consider the timing or phasing of your planned activities to match your expenditures with your cash inflows in order that you don’t cause a cash squeeze. The document used to manage this is called a cash flow forecast.

If you’ve been trading for more than a year, then your previous trading history is a great place to start when considering your sales forecast. Consider the events that caused sales to happen, specific marketing campaigns, trade shows you attended and how these were successful or not.

Also, consider the seasonal nature of your business, as this can have serious consequences on the cash flow of your business. If sales are going well, don’t forget to consider the working capital implications as if you are growing, you will need to make sure you have sufficient working capital financing in place.

If anything can be learned about the credit crunch of 2007 – 2009 then it is important to consider the implications of stressful exterior events in your budget planning. What if your best customer decides to move elsewhere? How much of your sales do they generate? What could you do to deal with that?

What if two or three of your main customers go bust or don’t pay on time? What are the consequences of that? What is your plan to deal with it? Can you get credit insurance? What will it cost? Have you included it in your budget?

A bit of time spent judiciously coming up with some problematic issues and modelling what you would do will help you generate a robust budget that will help you whether you're steaming along or if an unexpected thing happens.

More about Budgeting and Planning

Estimating Start up Costs

Getting your Working Capital Financing in place.

Effective Working Capital Management

How to Finance a Business

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