Creative Content Specialist
Ready to become your own boss? You better be prepared if you want to become a success story rather than just another failed startup statistic. What’s the number one reason small businesses fail? Cash flow. It’s absolutely imperative that you build a well-developed business plan and budget to ensure you have enough cushion in your margins should anything go awry.
Here’s the thing: personal budgeting is very different than business budgeting, filled with all sorts of variables that are very much out of your control. Just take the unpredictable coronavirus as a prime example. Your business plan should identify various obstacles you might encounter as you launch your startup and get your company off the ground.
Let’s go over five essential tips to point you in the right direction.
1. Identify your parameters
Every small business will have its own unique processes in place, but there are some universal parameters that apply across the board. A few examples include:
· Rent or mortgage payments (unless you operate out of a home office)
· Utility bills for electricity, water, air conditioning, and so forth
· Expenses for cost of goods sold (COGs)
· Loan payments and interest accrued
· Payroll and income taxes
· Marketing materials or services
The first step is to identify all of these fixed expense categories, which leads us to our next tip…
2. Make a spreadsheet
If you’re not going to hire an accountant and prefer to tackle the bookkeeping yourself, it’s absolutely imperative that you stay organized with a spreadsheet to keep track of every penny coming in and out. Estimate the dollar amount for each of the items listed above, along with what portion of business revenue will be allocated to cover these costs.
Reach out to potential suppliers or vendors you might need to work with to get a more accurate estimation of expenses. Having these figures nailed down to a tee is the best way to ensure you’ll stay in the green, and if you can identify at what point your business will be able to start flipping profits, you’ll be far likelier to receive funding from venture capitalists.
3. Add room for error
It doesn’t matter how many startups you’ve created; even the most seasoned business professional can’t perfectly predict revenue growth, or whether certain expenses will be fixed and controlled. That’s why you always need to factor in some slack to make sure you have plenty of money stashed away before you hire new employees or expand services. That way, you can rest assured that you’ll be able to cover your current liabilities at any point in time should sales fall, equipment breaks, or a pandemic pauses operation altogether.
4. Keep labor low
As an entrepreneur, it’s pretty likely that you’ll run your business as self-employed. But once it takes off and you experience an increase in demand, you’ll need to hire help to keep things running smoothly. Do this with very careful consideration, because labor costs and payroll taxes can be a major drain to any business budget.
You might be able to save money by hiring independent contractors for one-off jobs, such as web development or content creation because you won’t be responsible for paying payroll taxes.
However, if you need consistent labor from employees, there are also money-saving strategies you should explore. Some examples include limiting their hours to a part-time schedule so you don’t have to offer benefits or paid time off. Another option might be to hire seasonal or temporary employees to provide help as-needed, rather than keeping them on a permanent payroll roster.
5. Look to cut costs
Labor wages aren’t the only cost you should keep down; look to cut costs anywhere and everywhere, so long as doing so won’t negatively impact your business efficiency. You might be able to save money on investment services, for example, or by switching from traditional advertising to digital advertising.
Keep an eye on your overhead costs and try to hold them to a minimum. You might be able to negotiate better prices from suppliers or save on office materials by purchasing them in bulk. Don’t overstock your shelves with items that sit there and collect dust, and explore different ways you can save on costs to protect your bottom line.
Know where you should spend money as you start a business, and more importantly, know how to track all your costs to stay within margin.