2018 could be a great year for your small business if you plan well for it. As a small business owner, your finances are key to your small business’s success. With 2018 just a few days away, start your financial planning with a solid budget.
A solid budget can help you stick to your financial planning and handle any unexpected obstacles that come your way. With the right budget, you can:
- Prepare for taxes.
- Identify financing needs and growth opportunities.
- Anticipate seasonal highs and lows in cash flow.
- Gauge your small business’s performance.
According to the Small Business Administration, half of all small businesses fail within the first five years. If you’re newer in the business, smart budgeting can help you avoid being in that percentage.
Here are five steps to helping you plan a smart budget for 2018.
- Review your previous budget.
A good place to start is reviewing your 2017 budget to determine how closely it matched your profits and expenses. You can see where you piqued and where you fell short, which will allow you to plan ahead for 2018. Now that you know how deeply your seasonal highs and lulls affect your cash flow, you can save some revenue—or plan ahead to take out a small business loan—to help cover expenses.
However, if this is your first time creating a small business budget, no need to fret. There are plenty of available resources for small business owners. Check out SCORE’s financial templates, for example, to help you plan for 2018.
- Project your income and expenses.
Your income and expenses show how well your small business is doing. If you’re just starting up, you’ll probably be seeing more red than black. With budget planning, you should be able to see the red get closer to the black each year.
To project your income, review how well you did each quarter and month in 2017. Create a realistic estimate of how much you plan to bring in each quarter and month in 2018. Remember to include any strategies that could help increase these profits. After you’ve projected your income, you’re ready to project your expenses.
First, look at the fixed expenses you’ll have each month or quarter. This includes rent, payroll, utilities, insurance, loan payments, and even taxes. Then, include any fluctuating expenses for the same timeframe. This includes any extra inventory, office supplies, shipping costs, and invoicing. Finally, plan for any surprise expenses. This includes broken equipment that needs replacing, planning for natural disasters, planning for unexpected store closures, and for a possible increase in your rent or mortgage.
By projecting your income and expenses, you can get a better idea of how much revenue you have, which can help you avoid overspending. You can also see if you’re able to invest in new products, strategies, equipment, or more to help your business grow.
- Determine priorities.
After you project your income and expenses, you’ll want to determine what goals you want to achieve in the next year. This includes short-term goals (1 to 3 years) to long-term goals (4+ years). Short-term goals include having an emergency fund, hiring part-time employees, and adding more inventory for your seasonal highs. Long-term goals include retirement, hiring more full-time employees, or opening a second location.
By prioritizing your goals, you can see where, when, and how much to start putting aside so you can achieve these goals. Let’s say you want to open a second location for your retail store. Now, you should be able to project when you can open one in a reasonable timeframe and how much you need to save to meet that timeframe.
- Revisit your budget.
It’s important to know that your budget probably won’t be consistent. As your small business changes, your budget will change. Revisiting your budget once a quarter or even once a month can help you see where you stand financially. You can adjust where need be, looking for opportunities where you can grow or scale back.
You’ll also be in better control of your financial decisions as you’ll know how much you have left to spend, how much you’re projected to make and how much you might need to lend from online lenders, banks, or peers.
- Make saving automatic.
If you have a big expense planned or a long-term or short-term goal that needs some extra financing, set up automatic payments to set aside the funding you’ll need. Let’s say your plan will cost you $20,000, and you’re hoping the goal will be finished by November 2018. If you can, set up an automatic transfer of $2,000 per month. As you work toward your goal, you can use these savings to help fund the $20,000 or to help pay of any loans you may have taken to get started on it.
Creating automatic transfers can help you in multiple ways:
- You won’t forget to set aside money for your goals.
- You won’t overspend.
- You won’t put aside your goal for later.
A solid budget can help your small business’s success in 2018. These five steps can help you plan a smart budget for your small business in 2018. Finances are crucial for your small business, and with the right budget, you’ll be able to project highs and lows, taxes, growth opportunities, and more.