Financial planning is a critical task for any small business to perform. You already know there are going to be start-up costs, such as the lease, inventory, utilities, employees, marketing, and so on.
But the expenses will not necessarily stop there. Once your business is up and running, you need to be prepared for unexpected expenses.
It is always expensive to start a business. Without a reasonable budget in place, you can easily lose track of your finances along the way.
You must plan out exactly what you are going to spend your money on. There should also be a reserve amount of money set aside from emergency expenses too.
Budgeting is even more important when you are spending money that you’ve borrowed or loaned from a bank. The worst thing to do is carelessly spend loan money and then have no more left to pay for the things you need and then still have to pay interest on the loan.
Set a Dynamic Pricing Strategy
The concept of setting a static price on products does not work well for most small businesses anymore. You will have better luck implementing a dynamic pricing strategy for your products instead.
This is a strategy where the pricing of your products is frequently adjusted to accommodate the fluctuating demand level for them.
As a result, the prices of your products may increase or decrease rapidly in order to attract customers. Roughly 50% of Australian businesses incorporate the dynamic pricing model in some way.
These businesses end up with an extra 3% to 15% of additional earnings annually.
When you are a new business owner first starting out, the dynamic pricing strategy may be the most effective way to attract customers quickly and get your brand noticed more.
Set a realistic budget that you can attain. As anyone who has completed any training in small business will tell you, planning is everything. Consider the previous results of your business to come up with a realistic budget and accurate future projections.
You should review at least the past 5 years of your financial records in order to make these projections.
Look closely at the fixed expenses versus the unexpected expenses. If you can control the one-time expenses and prevent them from happening again, then perhaps you can make cuts to your overall expense budget.
Businesses are always going to experience unexpected expenses each year. Sometimes they will be minimal while other times they will be substantial.
Do not always try to predict how much your expenses will precisely be. Instead, overestimate your expenses so that you will be ready to pay them if necessary. And if you do not end up paying them, you will simply have a surplus on your budget.
You might feel the compulsion to spend a lot of money after your business starts making money. That is a bad habit to get into.
Since businesses have their ups and downs, you do not want to spend all your savings and then have your business experience hard times. If you can stash away at least 30% of the company’s monthly profit, then you will be ready to keep your business afloat when things get tough.
Time is money in the business world. Do not waste time by putting off projects or waiting to the last minute to do them. The same goes for your employees as well.
The longer you wait to get something done, the more money it will cost you in the long run. Therefore, always avoid procrastination and make sure your employees do the same.
Microsoft Excel is a handy piece of spreadsheet software, but it is not everyone’s cup of tea. There are much easier spreadsheet programs available for budgeting, such as Quicken or Microsoft Money.
The point is to use any computer software program which is simple to operate. The days of paper and pencil budgeting are over.
Look for Bargains
As a business owner, you should be interested in looking for a bargain just like your customers are.
In the business-to-business marketplace where you purchase items from suppliers, try to find suppliers who offer the best deals on their goods.