Here’s a link to a great article from the LA Times on the importance of budgeting, one of the key elements to small business success in these uncertain times. There are huge pluses for retailers to create budgets these days. Investors like to see that a business knows where it stands. When employees, customers and investors know you have an idea about how your company could fare in the coming months and next year, they have more confidence in you and your business.
Here are the bullet points:
- Determine what your business will spend. Use current- and past-year financial information to build a month-by-month list of fixed and variable costs expected in 2010.
- Estimate monthly revenue. Start with current- and prior-year numbers, then talk with your customers about how they are faring and what they expect to need from you next year is even more important now because of the volatility of the economy.
- Compare costs and income. Plan to fill any gaps. When revenue won’t cover the costs estimated during a particular month, find ways to cut costs and increase revenue.
- Create budget variations that cover a handful of situations. Tweak the basic budget to show how the numbers would change if sales grew or fell by specific percentages. Show what would have to be done to cut costs or boost revenue if sales fell 15% to 20%. What if sales grew by that amount? What if you lost your biggest customer?
- Don’t forget to map out your cash flow. Your budget may show a profit in a particular month — maybe a customer is scheduled to place a big order — but that doesn’t mean your business will have enough cash that month to cover expenses. Cash flow, as many small-business owners learn too late, doesn’t rise in step with sales.
- Update the budget each month. Don’t stick your completed budget on a shelf. Revise it monthly as you get closer to the start of the year and as you work your way through 2010.
Read the whole article here:
A Budget is Key to Small-Business Success