A budget refers to a financial spending plan for small companies summarizing their yearly business revenue and expenditure. It identifies how much capital the entrepreneurs of these corporations have, their regular income sources, and operational spending patterns. They analyze a budget’s information to determine their organizations’ overall financial performance. Then, the entrepreneurs can make important decisions on how to strengthen the cash flow by curtailing costs and exploiting new revenue sources. Many of them even use the budget to scrutinize underperforming areas of their businesses and as a benchmark for setting financial goals.
Kavan Choksi – Why is it important for small companies to prepare a business budget?
Kavan Choksi is a businessman with a passionate interest in the latest technology, business finance, and photography. According to him, a budget enables entrepreneurs operating small companies to assess how much money they have at their disposal. They can then determine whether the funds are adequate to finance business operations expansion projects and exploit new revenue sources. The budget also helps them make important decisions on modifying the business plan to boost productivity and income generation. Otherwise, the entrepreneurs run the risk of:
- Spending more money that their companies are actually generating as revenue, and
- Not having enough money to take advantage of lucrative business opportunities.
Essential budgetary tips for small companies
Entrepreneurs of small companies need to know how to manage their capital and cash flow to ensure the growth of their businesses. They have to ensure there are enough funds to finance business expansion projects by preparing a comprehensive budget to monitor operational expenses. To strengthen business cash flow, they need to keep in mind the following budgetary tips:
- Be aware and save for hidden business expenses
Entrepreneurs should conduct thorough research to identify certain hidden business costs which can affect their cash flow. They can determine these expenses by scrutinizing the previous financial records for their businesses. It is important for them to make provisions for these costs to prevent excessive cash outflow that their companies’ financial stability.
- Create an emergency fund
Small companies need to maintain a suitable emergency fund equivalent to six months of normal operating costs for their businesses. Their entrepreneurs can then rely on the cash reserve to meet unforeseen business costs arising from natural disasters they did not anticipate. Moreover, they should not lay their hands on the cash reserve except as a last resort.
- Clear business debts
Entrepreneurs operating small companies must make it a point to immediately pay off all of their business mortgages and loans. They should clear the entire monthly dues on their business debt rather than just the minimum payment. Otherwise, there will be drainage of their business funds. It will ensure they will not incur additional interest charges and penalties that increase their operating expenses.
According to Kavan Choksi, entrepreneurs of small companies need to be responsible for preparing a viable budget for their businesses. Then, they can maintain a steady cash flow to ensure the smooth running of their corporations’ business operations. It will also prevent their companies from getting into serious financial difficulties. However, if the entrepreneurs do have problems, they should consult an experienced financial specialist.