Running a large business is sometimes considered more difficult than running a small business, even though CEOs and group leaders can get all the information they want, when they want it, and they have lot of capital to make sure their decisions are implemented.
It’s a fair point, but it’s a misconception. Running a small business is actually much harder than running a large business, simply because the entrepreneur in charge of a small business doesn’t have the same means – and is usually facing far stiffer competition.
Do you want to manage your finances better? Here’s your essential guide to balancing a small-business budget.
Identify the risks for your business
An enterprise has inherent risks – running a business means that you are willing to accept the risks in return for the possibility of eventual profit. One of the keys to success in business is being able to balance your budget. It’s also critical to identify the risks, and find ways to minimise them. There are various ways to reduce risks (and, truth is, it’s not that hard), but it’s important to first determine the specific risks which apply to your business.
Avoid unexpected expenses
It happens to the majority of entrepreneurs – they tend to spend a lot more than they anticipate at the start. If you think you have all your business expenses listed down, think again; it’s very good advice to add a margin (e.g. 20%) for financial planning purposes in relation to initial start-up expenditure. Research shows that start-ups are much more likely to spend more than less, especially during the first couple of months of operating. Plan for it – don’t get caught short!
Understand your business cycle
Know your business cycle. Is your business likely to be affected by seasonal trends? Is it recession proof? Research competitors, annual sales statistics for your sector, etc. It takes some time, but it will give you greater insight into your market, and make long-term financial planning much easier.
Avoid unnecessary large purchases
Large purchases typically require serious funding. If you are worried about committing, it might be better to consider leasing equipment initially rather than purchasing it outright.
Finally, don’t reinvest everything that you earn into your business immediately. Set aside a certain percentage in a savings account and build up your cash reserves. This will help you in two significant ways: it will give you satisfaction knowing that all your transactions are accumulating money in the long-term, and it will give you easy access to capital for expansion in the future, with no need to take on expensive business loans or put up collateral.
