One of the biggest challenges for small business owners is the shortage of funds. There is never enough cash for them to do everything the right way so you may need to make several compromises along the way to ensure sustainability. Financial planning and budgeting, under these circumstances, become extremely critical and deviance may cause trouble for the business. For a small business to be successful, one of the most important things it needs to get right is an accurate and realistic budget. Some practical tips:
Evaluate the Current Business Situation Thoroughly
For a small business to be successful, it must manage a large number of risks. Businesses need to not only handle changing technologies but also customer preferences and competitor activities. It also needs to take into account the political, regulatory, and economic environments that can have a very heavy impact on its ability to do business. It must also deal successfully with employee productivity, motivation, and the inevitable attrition. Despite the obvious difficulty in making accurate financial projections, successful businesses need to craft achievable but prudent budgets.
Be Conservative in Your Approach
Even though your business may be booming, you still should be extremely conservative when you make your budget. Try to think of all the things that can go wrong and estimate the impact it will have on your sales and profitability so that the budget you make will still hold good. Remember, even if a sudden downturn in the market negatively impacts your cash flow, you will still need to pay your employees and keep the business running as well as repay your loans. Even if you are optimistic about your business fortunes, you should aim for a conservative budget so that you are not thrown out of gear in case the business takes a nosedive, advises Ram Duriseti.
Monitor Your Sales Cycle Closely, Recommends Ram Duriseti
If your business is subject to seasonal fluctuations, it can create financial stresses that you need to manage efficiently. Because your business may be booming for a part of the year, you should not be lulled into a false sense of confidence. You need to be prepared to face the off-season when your sales will taper off substantially but you will continue to incur most of the expenses. You should use the off-season for maintenance and repair of your plant and equipment and also make the financial plan and the marketing strategy for the busy season.
Plan for Capital Expenditures and Emergency Expenses
The replacement of big ticket-items like plant and machinery, vehicles, etc. needs to be planned so that you can arrange the necessary funding without stressing out your cash flow. Emergencies can happen any time so be sure to build up adequate savings to be able to tackle it without bursting a blood vessel.
A successful small business does not happen by chance. It is a result of careful business and financial planning and the ability to adhere to realistic budgets. Entrepreneurs need to be able to predict changes in the environment accurately and make changes to their financial budgets accordingly.