When you’re building a business, your financial foundation can be the difference between success and failure. Regardless of your business’s size, it needs an operational budget. As you work on your company budget, ask these seven questions to guide your finances so you can support your company now and into the future.
How will I monitor my budget?
Understanding how much money is coming and going helps company owners develop their budget. If you don’t have an expense management tool, you will struggle to follow your cash amid the rest of your responsibilities. Using the business budget guides from industry leaders like Divvy (https://getdivvy.com/) can help you better track and manage your budget.
What are my expenses?
Another vital question to answer is about your expenses. After you’ve monitored your money, you’ll better understand what ongoing costs you have. You’ll also have a better picture of the flexible expenses. Knowing what goes out each month can help you learn what you’ll need to keep the lights on and which recurring fees can wait if you’re in a pinch.
What is my expected cash flow?
Before you can build a reasonable budget, you’ll need to know what cash moves through your business. Cash flow is different from income, as it shows what liquidity your company has. You might have businesses that owe money on invoices, but you can’t pay your bills based on money that isn’t in your pocket.
Do I have a cushion?
Your business budget should have a cushion that helps cover unexpected problems. If you ever exhaust your savings, you should immediately begin refilling the account. This cushion should cover emergencies and any other surprises. Only you can decide how many months the buffer will cover, but it’s better to have more in the bank than not enough.
What costly projects will I need in the future?
As you work on your budget, ask yourself about the projects you’ll need to fund in the future. Remember that companies need to update their technology every few years. Standard equipment also wears out, and replacements can be expensive. SEO marketing, new products, and hiring expenses can cost a pretty penny, forcing businesses to spend more than their typical allotted monthly budget.
What expenses can I cut?
When you ask questions about your budget, it’s helpful to look closely at expenses you can cut. Some companies have figured out how to cut utilities by offering remote working opportunities. You might be able to reduce overhead other expenditures regarding rental costs and vendor contracts. Ask your vendors and utility companies about loyalty discounts.
What is the expected annual revenue?
Along with understanding what money goes out, you’ll also need to know what money is coming in annually. You’ll be able to set your budget accurately when you get a realistic picture of your annual revenue.
While building your budget, knowledge is power. When you have a realistic understanding of your income and expenses, you’ll be able to create a budget. A solid budget enables you to build your buffer, plan for upcoming expenses, and understand your cash flow issues.