DINEO TSAMELA: A budget gives your growing business a quantifiable direction
For small business owners, winging it — especially when you're starting out — may be a way for you to function in the first year or so. You're trying to grow you client base, you're making mistakes and learning.
The idea of putting together a solid budget for your business amid the chaos may not be particularly appealing.
But as time goes on, setting a clear and quantifiable direction for your business growth is important if you want to be successful.
Budgeting, or forecasting, can be difficult if you have nothing to base your projections on. However, it's important to factor in the following in your budget:
• Set your sales targets: You need to have a sales target that speaks to your operating costs. If you have past numbers, use them to derive a target for the future.
A target for sales will guide the rest of your budget and help you work out how the other parts of the business fit under this single target.
You can set a target for the year, then break it down monthly.
A monthly view helps you keep track of the performance of your business. You're then able to plan better for the next month, especially if there's a negative variance — that is if your actual numbers differ significantly from your budgeted figure and it's not a positive difference.
When putting your sales targets forward, don't forget to take into account external factors that may affect your business, such as the economy and cyclical demand.
• Map out your operating expenses: Always split up your costs into fixed, semi-variable and variable.
Your fixed costs take a lot of work out of bedding down changes or fluctuations in cost. You'll also be able to plan better for slow seasons. If you have a bricks-and-mortar business, you'll find that your operating expenses are more likely to be higher and the list longer.
If you deal with physical inventory, then your operating costs will include the cost of buying, delivering and storing your inventory.
Your budget will also shine a light on your operating expenses so you can keep an eye on wasteful expenditure.
• Forecast your profit: Compare operating costs to sales targets and see what you're left with. If your sales targets fall below your operating expenses, you can be proactive about making changes to your business strategy so that you're able to cover your operating expenses.
• Draw up a separate cash-flow budget: Cash is the lifeblood of your business.
It allows you to respond quickly to emergencies and stay agile. A cash-flow budget will help you identify potential
cash-flow strains and you'll be able to act quickly to mitigate cash shortfalls.
• Have a strategy that is ready to be executed: Putting the plan together is one thing. You must be able to act on it so your goals and business strategy match your targets. Your goals must be actionable and measurable.
Microsoft has free budgeting templates that are very useful for business owners who need help getting started. You can access them through templates.office.com, under the "office templates and themes" category.
You can also use BetterBudgeting, Docstoc and Business Owners Idea Café. Accounting software such as QuickBooks, Sage and Xero can also help you organise your financial statements if your business is bigger and requires a more complex accounting system.
Even with technology, you might still want to consult an accountant to help you make sense of numbers.
It might seem like a big ask in terms of cost - but you would much rather have someone explain aspects that you don't understand than run your business into the ground because you didn't understand the numbers and thus failed to plan better.
• Tsamela is the founder of Piggiebanker.com. Follow her on Twitter @Piggiebanker