Every business owner knows budgeting matters. You need to look at the numbers to understand where you are and how you will make money. Like most business strategies, though, a business budget only works if you build and apply it using accurate data for your specific organization. Incomplete or overly optimistic assessments can actually do more harm than good. To get your business in the black and pay down debt at the same time, you need a thorough, realistic process.

Start With What You Have

Your business budget is neither a wish list nor a pipe dream. Instead, it should take into account everything you have, the revenues you are making, and the costs you regularly incur. It should also look forward, conservatively identifying what you expect your financial picture to be: for the next month, the next quarter, and the next year. Set up well, it can safely guide your future purchasing and marketing decisions.

Before you plan forward, take some time to look back. Look at the last three months and write down all of your revenues and expenses. Start with your fixed amounts, but also look for unexpected costs. You can plan for these too, and doing so will save you stress moving forward.

This exercise helps you plan not for what you think, expect, or hope will occur, but what obstacles you confidently know you can deal with. It grounds your business budget in experience and knowledge. From there, you can chart out a more realistic path forward, with a clear vision of what you have brought in and what you have spent.

Chart Realistic Revenues

Your revenues, particularly in a young or growing business, remain fluid. They can change in either direction, depending on demand for your product or service, how effectively you market, and how much competition you have. Too many business owners are either overly optimistic about their growth or overly pessimistic about what they can achieve. The former gets you into financial trouble if you don't meet expectations, while the latter can paralyze you. 

The most reliable guide to your revenue path can be found in your recent past. If you have experienced steady growth in the last few months or even the past year, it's reasonable to project continued growth from that point. Similarly, if you have flattened or decreased revenues, you should look for ways to right the ship, and plan for the expenses you will experience in doing so.

This step in your business budget process needs to be repeated every month. Doing so keeps you focused on both what you have done and what that means going forward.

Cut Your Costs

Many business owners primarily focus on costs as they plan their budget. This makes intuitive sense, because it feels like you can control costs more directly than your revenues. The danger, though, is that when you are growing, costs can directly affect the rate and quality of your growth. The idea is not to stop spending; it is to keep focusing your spending on the expenses that push your business forward.

With this focus, you can usually find places in your business budget to cut expenses. Many business owners work with vendors that others recommend. These may be the best choices, or simply the best known; you can't be sure until you compare them to their competitors. You should be seeking spending efficiency: the best quality of supplies or services for the lowest cost to you. Look at every expense you have, and see whether you can either eliminate the cost or reduce it through smarter purchases.

Finance Responsibly

One of the biggest places to cut costs is your debt. New businesses seldom get the same financing rates as more mature businesses. This comes in part from opportunity. A new business represents a greater risk to lenders than an established one, so your finance costs are almost always higher. Your own experience and timing can also have a dramatic effect on what you'll pay for a business loan. If you hastily accept a financing offer because you need money quickly, you'll probably miss out on better rates that may be available.

Yesterday's urgent need, though, becomes today's business budget opportunity. Start by adding all your debt payments up to see what you are really paying. Look to the highest interest loans you have in place, and see whether you can refinance. Consider consolidation loans as well, which turn several smaller payments into a single amount that pays down your debt faster. You have both a lower monthly expense and a faster balance reduction, giving you more money to work with today and in the future.

Your business budget should give you a path to higher profits, increased cash flow and reduced debt. Kenmore Capital can help you find a path to achieve all of these goals.


Paul Nemoy
Posted by
Paul Nemoy
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