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Estimating and matching expenses to revenue is critical as it assists small business owners to determine whether they have adequate money to fund operations, expand the business and produce income for themselves. With a business already operating, you can assume future revenue depending on recent trends in the business. If the business just commenced, assumptions can be based depending on the geographical area and studying other local businesses. We look at some effective budgeting techniques.

  • Have a realistic cash flow projection – It is better to underestimate potential business income than overestimate. Small business owners need to factor in the existing business environment and the risk of failure when it comes to budgeting.
  • Check industry standards – All businesses are not standard but they have certain things in common. Research information about the industry.
  • Identify your essential expenses – These need to be met first before spending elsewhere. Writing them down will prevent forgetting or overlooking them.
  • Create a Spreadsheet – Make a spreadsheet to estimate the money needed to be allocated towards raw materials, rent, taxes, insurance etc.
  • Provide for unforeseen circumstances – There may be expenses for things that cannot be predicted in advance. So it is wise to set aside extra money for the same.
  • Outline discretionary business expenses – Small business owners need to decide which items are desired but which the business can survive without. A tip to save money is to utilize marketing strategies that are either free or pay for performance.
  • Look for opportunities to cut cost – Identify items that can be controlled to a great degree. Wait to purchase until the beginning of a new billing cycle. Take full benefit of payment terms provided by suppliers, creditors and others.
  • Periodically review the business – Small businesses should budget more often than large ones. This is because business can be quite volatile and throw up unexpected results.
  • Shop around for suppliers/services – Do not be reluctant to look up options to save money. The small business should ideally get the best deals available.
  • Eliminate or reduce debt as soon as possible – Debts cost more in the long run because of high interest rates. Being debt free reduces the stress on small business owners. Look around for better debt repayment plans.
  • Never use up all the profits – You need to set apart money for contingencies. It’s wise not to take a big chunk of profits to pay yourself. Rather come up with a reasonable wage for yourself and take it regularly.

Good budgeting will help you have control over your small business and make it profitable.

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