There’s nothing glamorous about crunching numbers, but if you’re hoping for explosive growth this year, you need to plan a small business budget now. We’ll help you identify the costs and revenue streams that make up your small business budget, and we’re also going to cover how to save money and build a strategy for your most lucrative business year yet. Your balancing act is about to get a serious upgrade.
How to Optimize Your Small Business Budget in 2019
1. Determine Your Business Income
2. Calculate Your Business Costs
3. Balance and Reflect
4. Cut Costs
5. Bring in More Revenue
1. Determine Your Business Income
Every business goes through busier and slower periods throughout the year. Determining your average monthly income is the first step in creating an efficient small business budget. Add up your gross annual revenue, and divide by twelve (or however many months you have been in business if your fresh enterprise hasn’t celebrated a birthday yet).
A few tips helpful tips:
- If your business is still young, initial sales reports are less reliable for forecasting, so be conservative. In other words, if your average monthly income is $5,700, you may want to round down to $5,500. This will help you keep a tighter grip on your small business budget.
- Your volume of sales can vary dramatically over the course of the seasons. You may also want to crunch the numbers and look at how sales fluctuate throughout the year. Some businesses flourish in the summer, and others see sales skyrockets around the winter holidays. Examining these trends will help you predict when you’ll see cyclical dips and jumps in revenue, which can help you plan for budgeting. It can be helpful to allocate some of your funds to the time leading up to higher sales, to prepare your business for handling higher volumes.
2. Calculate Your Business Costs
Expenses have been the downfall of many enterprises, which is why tracking them is essential to developing a healthy small business budget.
There are five major factors to address in expenses:
You need resources to craft your products, whether they are digital or physical. If you’re selling unique t-shirts, you might require backstock of plain t-shirts for your clothing business. If you’re selling digital products, you may need to source stock images, background music, or top of the line editing software.
Whether you’re a solo superstar or a growing team, you want to compensate everyone for their time and effort. Knowing the true investment in labor helps you manage expenses and also gives you a better sense of which roles and functions benefit your ROI.
It’s not uncommon for entrepreneurs and small business owners to take a serious pay cut when beginning a new venture. If this is your situation, it’s important to take a step back and reflect. While some sacrifice is normal and healthy, it shouldn’t be a permanent situation.
Are you bringing home more money than when you started, or are you putting everything back into your business? If your personal financial situation isn’t improving, it’s time to balance your small business budget and make the business provide a better salary for you.
Services and repayments
Are you paying rent for a brick and mortar space, service fees for an online store, or both? How about email marketing tools, bookkeeping software, or the services of a specialized freelancer? Maybe you’re in the process of paying back a small business loan or have a set amount that you pay to investors and partners.
All of these fees, no matter how small on their own, add up to a substantial amount for your small business budget. We’ll talk about how to bring these down later.
You don’t need to run a business to know that taxes can sneak up on you. Most other costs are flexible and mutable, but there’s no negotiating taxes. While it’s helpful to use as many deductions as possible, you will benefit in the long term by calculating the cost of taxes well before their due date. Unexpected tax bills can destroy a small business budget, and leave you on slippery terrain for the next financial year. Plan and save accordingly.
The little things add up faster than you might think. From lattes at business meetings to upgrading a work computer, miscellaneous costs are all the random expenses that impact your small business budget. Some may seem inconsequential, and it can be tempting to just pay out of pocket. In the long run, it’s essential to get in the habit of tracking everything as accurately as possible.
3. Balance and Reflect
You now have a clear sense of the money coming into your business and the money going out. This understanding will allow you to see the big picture of your small business budget, and to make adjustments as necessary. To run a healthy, growing business, look at the numbers, and ask yourself a few important questions. Honest answers will benefit you in the long term.
What is my biggest income source?
You may have a singular business partnership or a client that buys the bulk of your products. If that’s the case, there are two things you need to do. The first is optimistic; reflect on how to match this income with a similar partnership to increase overall revenue. The second is a little more negative, but bear with me; you need to consider how losing this client could affect your business, and what type of safety net you can put in place.
If you sell products online, you’re likely to see that certain products are outperforming others. Consider what makes these products convert sales higher within your niche, and why. Figure out how to add similar products to your inventory. In theory, if you can add another best-selling product, it will dramatically improve your overall sales.
What are my biggest costs?
I know that adding up those expenses made you wince, but it’s really going to help your small business budget in the long term. Monthly bills and service fees can do a business in, but it’s also likely that your cost of materials or labor is higher than you realized. Identify what your biggest costs are in each category.
What do you want in the future that isn’t in your budget now?
We all need resources to help grow a business. This could mean investing in a dedicated workspace, a new hire, or a major marketing campaign. The funding for these changes may not happen unless you have an active plan built into your small business budget.
Think about your goals and anticipated future projects for the year. Determine a rough estimate of the investment’s cost. You may not achieve all of them this year, but getting everything on paper is going to help.
4. Cut Costs
When you look at that list of expenses, it can be daunting. It’s hard to figure out what you can do away with to achieve a more balanced small business budget. Don’t worry. The key is not to eliminate costs, but to find more budget-friendly alternatives that serve the same functions.
Change Where You Run Your Business
If you have a brick and mortar with steep rent, consider relocating your business to a new neighborhood, or reducing your square footage. This one factor can totally transform your small business budget and free up revenue for new projects.
If you have an online business, it can be as painless as switching to a more affordable Ecommerce platform. There are so many options for Ecommerce solutions, from Gumroad to Shopify. High subscription fees and high transaction fees mean that your small business budget can take a fatal blow. We’ve heard a lot of entrepreneurs and small business owners express that they left more established Ecommerce platforms to give Selz a shot. Their thoughts? Top of the line customization features, streamlined processes, an intuitive interface, and seamless integrations to help businesses thrive with a Facebook store, create a Blogger online store, and sell alongside content with WordPress Ecommerce.
If you’re a freelancer, or an entrepreneur selling services, you may be renting an office or co-working space. If you can be just as productive in a different environment, consider switching to a home office or working from the local coffee shop. Not ready to downgrade to from a desk to a cafe table? Many co-working spaces will work with you to have the space available just a couple of days a week.
Swapping Out Tools
Email marketing and bookkeeping tools are game changers for growing businesses. These resources allow you to streamline your messaging and financing while providing you with valuable data and insights. However, it’s not uncommon for growing businesses to go overboard with time and labor-saving integrations. Those tools can really add up and impact your small business budget.
First thing’s first. Compare pricing and features of different tools to make sure that you have the best priced option for your goals. Every business is different, and there’s no universal best pick for email marketing, social media scheduling, or accounting software.
Doing your research here can save you a substantial amount in fees over the year. Keep in mind is that starting over with a new tool means that there will be some initial setup required, so plan accordingly. You may need to hire the services of someone familiar with the more technical programs, so check if your small business budget will allow for that.
This topic doesn’t apply to all small businesses, but if it applies to yours, it’s a big one. Whether you’re offering skincare or artwork, it’s imperative that you get quality materials at a competitive price. While the savings may not be massive per unit, the difference at scale means higher profit margins.
If your business is thriving, you have the upper hand in negotiating. You may be able to lock down more competitive pricing by entering into an agreement with your supplier.
5. Bring In More Revenue
Now that you’ve cut costs and established a clear picture of your finances, it’s time for the fun stuff. So, let’s talk about generating more revenue. For your business to grow, it’s essential that you are earning more money each year. Subtract your costs from your revenue, and you have a number that reflects how much money you have in your small business budget to reinvest in the company.
Some lucky companies seem to thrive organically, but you’ll want a bulletproof growth strategy to maximize your business’s potential. You probably already have plans for how to utilize your small business budget, but I do have a few suggestions:
The low-hanging fruit
Look at your top performing products. Every business has them- superstar products that outperform the rest by a mile. You can invest in these products because they have a higher conversion rate. By getting more eyes on the product, you will sell a higher volume. Focus your marketing efforts on these products, and the results will rejuvenate your small business budget by revving your sales.
Sometimes, products sell better in different contexts. If you sell in a brick and mortar space, you may not be reaching as many people as you’d like. Consider popups, events, or local arts and craft markets, if they’re the right fit for your product. If you sell online, explore the Internet’s highly trafficked boutiques. There are bound to be a handful that intersect with your niche. Forming partnerships with retailers means sacrificing some of your profits, but it can also help you move products at a higher volume, padding your small business budget. It’s also a great way to gain exposure.
I mentioned earlier that adding new items to your lineup can make a big difference. Trend forecasting is essential for sourcing and developing new products, but be wary of the seduction of tools that do it all for you. Your business is unique, and it’s important to honor that, rather than trying to be one of the hundreds of retailers selling the latest gadget.
It always comes back to your niche. Listen to your customers, and reflect on which products are performing best so you can make informed decisions based on the data you have. Choose products that complement your bestsellers and strengthen the narrative of your brand. Reflect on your small business budget to decide how many new products you can add, and feel free to take it slow. Investing in a small first run is a great way to test the waters without putting a dent in your small business budget, and selling out quickly can also help generate buzz around your new products.
The highest bough
What if a single sale or product could radically change the finances of your business? If this sounds like clickbait nonsense, hear me out. Not all business is recurring. Many artists, artisans, and entertainers live from one “big break” to the next. While it may not be something you can depend on for your small business budget, it’s definitely worth pursuing.
So what does this look like for an entrepreneur balancing a small business budget? It all depends on you. Think creatively about how to stretch your business model to bring in substantial revenue, without undertaking a major pivot.
One way to do this is to inform your customers that you’re open to commissions for whatever the top tier of your industry is – custom portraits for fine artists, engagement rings for jewelers, etc. Higher ticket items require more time, effort, and resources, which can put a strain on your small business budget, but they have a bigger payoff in the end.
Another option: use your expertise to your advantage. Touch base with your connections and expand your network to identify and lock down opportunities where you will be well compensated for your knowledge. Book a speaking engagement or teach at a high ticket workshop to bring in a sizable chunk of change.
These strategies build authority for your brand, generate authentic connections, and are great networking opportunities. The most important aspect of these possibilities, however, is how they push you to experiment. It’s easy to get stuck in a routine, but new projects keep your work fresh and exciting.
Every growing business faces its own unique set of challenges. With careful planning and preparation, you’ll be ready for whatever the new year throws at you. Optimizing your small business budget now will enable you to truly grasp and execute your vision for 2019 like the pro that you are.