The world around us is changing at a rapid pace. Just look at the past decade and think about how much of a technological revolution we’ve experienced. The amount of information, technology, and progress that we’ve made in such a short period of time is quite overwhelming.
With all of that being said and fresh in your minds, has your business been progressing at these same speeds? If not, you just might not be around to experience the huge changes ahead in just the next few years. Planning for the new year is essential, but it also can be a daunting task since the future always holds some uncertainty. A great place to start strategically planning is by looking at your business’s finances. If you are a new entrepreneur, hiring a local CPA or small business accounting services can help you understand your business finances quickly.
Why Should My Company Create a Budget?
Following a budget can benefit you in many ways. It can help you boost your savings by giving you a sense of where your money goes and helping to identify ways to cut back expenses. It can also help you reduce or avoid debt, thereby — you guessed it — leading to more savings. Your budget can help you:
- Anticipate cash inflows and outflows
- Prepare for tax obligations
- Identify financing needs
- Explore growth opportunities
- Gauge your business’ performance
Also worth noting: According to the Small Business Administration, half of all small businesses fail within the first five years. Smart budgeting now can give you a better shot at clearing that hurdle. A local CPA can help your business create a budget if you are a new entrepreneur.
Here Are Six Small Business Budgeting Tips for 2020.
1. Use concrete numbers when setting up your budget
To set up your budget, you’ll need to list your various spending categories to see how your total outlays compare to your earnings. But while you might think you know what each expense on your list costs you, you may be surprised at how far off your estimates really are.
A better bet? Comb through your bank and credit card statements from the past year to get an accurate sense of what you really spend. You might assume, for example, that marketing costs you $2,000 a month. But if you review your bills from the past year and find that that figure is actually closer to $4,000, sticking with that $2,000 will throw off your budget, rendering it far less effective.
2. Review Your Expenses
Start planning for next year by looking at and carefully reviewing your 2019 business expenses. Ask yourself questions like:
- What did I spend the most on in 2019 to operate my business?
- What cost recurred the most?
- What was the return on investment for the largest and most frequent expenses?
If your expenses are not clearly outlined from year to year, you may want to consider hiring small business accounting services to help get your books in order.
3.Project Your Income
Create a realistic estimate of how much money you expect to bring in each month. If you’re just starting out, talk to other small business owners to see if they can give you a rough idea of how much you can expect to make during your first year.
Getting a clear picture of how much money you expect to bring in is important for two reasons:
- Overestimating can lead to overspending and quickly put your company in the red.
- Underestimating may keep you from investing in new products, employees or marketing and hamper your growth.
Running a small business is a balancing act, which is why an accurate projection of your income is so critical.
4. An Emergency Fund is Necessary
Having an emergency fund on hand to help you deal with unexpected costs is essential for business budgeting. That said, 2020 may prove to be a year loaded with unexpected costs, so the more money you dedicate to “just in case” planning, the better.
We’re not just talking about costs related to tariffs or reduced consumer spending. More and more American businesses are being affected by catastrophic natural disasters, from hurricanes in Texas to wildfires in California. They’re also the victims of cybersecurity attacks that compromise their websites and steal their customers’ credit card information and personal data. A report from Verizon shows that 43% of cyber attacks target small businesses. An emergency fund can help get your business back in action right away after a disaster (either natural or technical).
5. Make Adjustments To Your Small Business Budget
Budget projecting isn’t a “one and done” process. You can create multiple versions of your budget to find the one that works best for you and your business. For example, you can project out what a budget would look like if you made substantial investments in your business and that also led to substantial growth.
6. Reduce Your Fixed Cost Commitments
Flexibility is going to be key in 2020. Therefore, you’ll want to reduce the amount of money you tie up in long-term commitments, even if that means sacrificing a small percentage of your profits.
Call Your Local Accountant
The end of the year is a great time to talk to your accountant. You can ask them to project out your tax liability now so you can start planning for what you’ll have to pay in 2020. In addition, if you are on a cash basis and do this before the end of the year, you’ll still have time to reduce your profits and therefore your tax liability by purchasing supplies you need for your business.
Small business accounting services are essential for many small businesses in Denver. In fact, small business accounting services are saving business owners time and money while producing the financial they need to make better business decisions.
The Bottom Line
It’s an exciting time to be a small business owner. Opportunities for growth are everywhere, and it’s possible that 2020 could be your best year yet. In order to take advantage of those opportunities, however, you’ll need to start with a solid foundation—and that means excellent responsible budgeting. Start with the above tips and you should be in good shape.
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Are your small business accounting practices slacking? Accounting plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information that can be used in making business decisions. Contact us TODAY to learn more about our pricing and packages for small business accounting services.