7 Smart Ways to Excel at Business Budget Management
The primary purpose of a business is to make a profit. This is achieved by ensuring that your income is higher than your expenses. The bigger the difference, the more profit you’re making.
From this textbook definition, it’s clear that the better you are with finances (read budget management), the easier it is to remain profitable. With all this in mind and without further ado, here are the top seven smart ways to excel at business budget management.
- Create a solid business plan
There’s no budgeting without a solid business plan. Here, you need to calculate all the expenses that go into launching your business, your operational expenses, and your projected income. If you’re going into debt to launch, this will also help you figure out when you’ll reach your break-even point.
The simplest way to get started is to download a template and customize it to meet your needs. The reason why templates are great is because they provide you with a solid basic structure. This means that it will be less likely that you miss something crucial. Also, by skimming through the template, you can plan a few steps while drafting your business plan.
The most important part of your business plan (from the standpoint of budget management) is to set financial targets. Your objectives need to be clear, and you need to have your KPIs listed from day one. This way, you’ll always get an objective picture of your performance.
Lastly, accept that you’ll always deviate from your business plan to some degree. Still, you can do a simple course correction by keeping one eye on the plan.
- Learn more about budgeting tools
Another thing you need to keep in mind is the importance of budgeting tools. You can do some basic bookkeeping with Spreadsheets or Excel, but finding a specialized tool is usually better.
First, you should find a rudimentary accounting software or any software for accounting workflow management. Even outsourcing your accounting, having the right tool on your side is best. Since these tools are cloud-based, you can both access them at any time.
Payment processing tools are one of the most important assets when managing your budget. You can use them for account payable automation. This will ensure that you never miss a payment, which would result in both creditworthiness and reputation loss.
You also need to learn more about transaction monitoring. This is an important diagnostic tool, especially if you suspect someone in your organization is less than honest with corporate finances. This is the simplest and the quickest way to notice fraudulent activity. It’s also the most elegant way because it avoids accusing anyone directly.
Perhaps the most important tool you need is a good cash flow management app. Without cash flow, there’s no efficiency in your day-to-day operations (some would even go as far as to say that there are no day-to-day operations to begin with). Speaking of which…
- Monitor your cash flow
Cash flow is the business world equivalent of pocket money. It’s the funds you have on hand and can spend on any immediate expense. The problem is that some enterprises dig themselves in too deep with account receivables that they completely forget about cash flow.
By monitoring your cash flow regularly, you can always act to improve it. Here are some ways to do so:
- You can incentivize cash payments by offering special discounts. This way, your customers will have a great reason to pay in cash.
- Actively working on expense reduction and also improving your cash flow. Once you get the ball rolling, you’ll simply be left with more money.
- You could even consider factoring if you’re in a time scramble. This concept involves selling your invoices (account receivables) to a factoring company to get some cash. While this is not the best option, it can solve many cash flow problems.
- Keep an emergency fund! Doing so gives you a reserve to dip into whenever your cash flow becomes too low. Naturally, you need to monitor your cash flow to understand when the time for this is right.
The best way to handle this situation is to become proactive. This means you must combine monitoring your cash flow with cash flow projections.
- Look for professional assistance
You don’t have to do it all on your own. However, bringing just about anyone isn’t solving your problems either. Instead, you need to look for some professional advice. Ideally, you would hire an accountant or a bookkeeper to help you. Nowadays, hiring a virtual bookkeeper and an online accountant seems to be the simplest solution to the problem.
Outsourcing to professionals is not just time-saving because you’re delegating these tasks. It also helps things get done quicker. A professional accountant with years of experience can handle this task far quicker than you would. Sure, their hourly rate is quite hefty but is your own hourly rate cheap? As an executive, an entrepreneur, or a manager, your hour has value, and many core tasks cannot be done without you.
Generally speaking, outsourcing your accounting is a great idea. An accounting agency can provide you with the accountants and bookkeepers you need. Moreover, you don’t have to worry about their availability or individual talent management. If someone has to go on sick leave or take a few days off, this won’t be your problem. To make the long story short, accounting is not just about money.
- Put more focus on revenue generation
It’s easier to manage your budget when you have more money. An unnecessary expense won’t be too much of a strain on your budget, and you’ll have more wiggling room if something goes wrong. It will become easier to make an emergency fund, and your business will be more financially resilient.
Still, how do you just increase your revenue? First of all, you need to change your perspective on spending. Unnecessary expenses are one thing (and an accountant can help you identify them) but what about investments? Spending more money on marketing can lead to much greater revenue.
- For instance, by increasing your marketing spending from 10% to 15% of your annual revenue, you’ll probably get a far higher increase in revenue than this 5%.
This is also where outsourcing to accountants comes in handy. After all, you’ll have more time and energy to focus on revenue generation.
- Keep all the records
Enterprise document management is one of the most important aspects of corporate budgeting and accounting. Simply put, you must have all your documents in check for several reasons.
First, you never know when the IRS will demand or dispute something, and you should be able to prove everything. This is only possible if you have all the documentation. Not only that, but you also need to access the document you need as soon as you need it. This is why you need this management software on your part.
Other than this, there’s so much you can learn from historical data. If you want to analyze the performance of your enterprise in the past, you need to have the necessary data. With an intelligent information management system, you can use even unstructured data. This is important because analyzing structured data doesn’t require extra support. Basic analysis can be done even in Excel or Sheets.
- Monitor, track, and adjust
Speaking of data analysis, you must understand that your financial plans and initial budget are not set in stone. You must adjust; the only way to do this is by monitoring, tracking, and adjusting your financial plan.
The first step is to determine the most significant KPIs. For instance:
- Cash Flow
- Debt-to-equity ratio
- Inventory turnover
- Sales growth
- Gross profit margin
Some businesses make the grave mistake of just observing their revenue. Sure, revenue growth is always a good thing, but it reveals surprisingly little about the actual financial state of your business. By getting better KPIs, you’ll paint a clearer picture of what you’re dealing with.
One of the commonly asked questions is – is there a point in making financial plans if you’re always going to be off? By trying to remain within your budget and on the course of your financial plan, you’re sticking to a solid structure. Being slightly off and not following your plan at all are not the same thing.
Better budget management is crucial to the survival and growth of your business
Everything about your business is tied to survival one way or another. You can’t make a good business plan without proper budget management, you can’t avoid legal trouble without keeping all receipts, and you can’t know if you’re on the right track without analyzing financial data. In other words, business budget management is an essential financial skill for any entrepreneur or manager.
