There are some really important budgeting basics every entrepreneur should know about when starting a new business or trying to grow one.
Almost half of new businesses fail the first five years after opening. That makes starting any business a risky adventure.
In the early stages of building a business, that initial excitement can lead to a variety of mistakes. One of the biggest is failing to come up with a budget for your new business.
Many entrepreneurs ignore this crucial step and suffer the consequences as a result. You want to set up your business for success and that includes implementing a small business budget that works for you. If you’re starting a new business venture, we have some tips that may help.
Here are 8 budgeting basics for today’s entrepreneurs.
1. Separate Business and Personal Finances
This is budgeting 101. Always keep your personal and business finances separate.
Mixing the two can lead to trouble determining how much money your business is bringing in and how much money your business needs. This can make it harder to plan for growth or project future income for your business.
It’s easy to dip into your personal finances when your business hits a slump, but you want to avoid doing this at all costs. Separating your finances helps you see your business expenses clearly.
It will help you keep a realistic perspective of your business and personal life. Create separate budgets. Use separate accounts and credit cards.
Start this habit early and work towards growing your business and your personal finances without mixing the two.
2. Plan for Taxes
It may seem obvious that you should set aside money for taxes. But as business expenses begin to add up, many entrepreneurs forget this important step.
This is especially true for first-time business owners and those without a financial background. Taxes cannot be avoided. This will be a recurring expense for the life of your business.
You can prepare for this by opening a bank account for tax purposes. Consider depositing 35 percent of your net revenue or 20 percent of your gross revenue each month.
If you don’t owe all of what you save, consider it a bonus. Failing to prepare in advance for tax season could result in late penalties or even worse, an audit.
3. Maintain Accurate Records
Maintaining accurate records is an essential part of running a successful business. Keeping up with orders, vendors, business loans, receipts, payroll, and more can be an overwhelming task, to say the least.
Many busy entrepreneurs fail to maintain proper records, and this is a big mistake. Without proper documentation, you may overestimate sales or fail to account for money spent.
Consider all the little expenses that add up over time. Accurate record-keeping is essential.
4. Hire a Bookkeeper
As a business owner, you’re pulled in many different directions. You’re busy and may not have time to devote to hours of bookkeeping duties.
It’s a great idea to trust the bookkeeping to a pro. Working with a bookkeeper from the start can help you define your small business budget and keep accurate records of all your income and expenses.
No matter the size of your business, a bookkeeper can take some of the stress off of you and save you time and money in the long run.
5. Don’t Underpay Yourself
Many new entrepreneurs tend to put everything they make into their business. While it’s important to have some backup expenses on hand, you need a budget that includes a salary for you.
As a business owner, you’re dealing with many moving parts. It’s easy to put yourself last. But this is not a precedent you want to set for the future.
After all, you are an employee as well. Compensate yourself and find other avenues for paying business expenses.
6. Understand and Define Your Risks
Owning a business is not without risk. And every risk has the potential to financially impact your business.
Small business owners must consider the short and long-term risks of their industry. Consider what’s unique about your potential risks.
Could changes in health care requirements or the minimum wage affect your business? Is there a potential for a natural disaster in your area? Do you rely on seasonal help?
Understanding risk and planning for potential risks is key to the longevity of your business. Knowing the threats you may face helps you better prepare for them.
This may include business budgeting for emergency plans, insurance needs, and more.
7. Market Your Business
As an entrepreneur, a solid marketing plan is a must for your business. Without it, your business will struggle to succeed.
Marketing is key to branding your business and reaching potential customers. A marketing plan will help you define your goals and find what works for your business.
The first step is to understand your customer base and the current market. With this, you can begin to market your products or services and compete in your industry.
8. Consider Outsourcing
Hiring employees involves much more than simply paying them a salary or an hourly rate. It involves health insurance, benefits, retirement plans, and more. Outsourcing is growing in popularity for small business owners.
It may be a solution for your business needs. When you contract a worker such as an accountant, bookkeeper, tech expert, or others, you can receive the benefit of expert services without the onboarding hassles.
Consider your budget and staffing needs to determine if outsourcing may be a viable option for your business.
Budgeting Basics for Entrepreneurs
Running a business is a time-consuming venture, to say the least. As a new business owner, your time is so valuable, and there’s only so much of it and you to go around.
Establishing the budgeting basics for your business cannot wait. It’s essential to have your budget in place as you move forward and grow your business.
Proper bookkeeping can help you organize your business finances and stay on top of your business expenses and financial needs. At Carefree Bookkeeping, our professional accountants can help you manage your finances while you focus on growing your company.
Before you go, take a look at the many ways we can help you.