Can you believe this is the last Monday of March! Wow - how quickly the first quarter of 2019 has flown by!
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Mom and Pop Small Business Budget - Your Passion...Budgeted
By Financial Planner Kate Welker, CFPⓇ
I feel like financial planners bring up that word all the time, but that is because understanding your cash flow is essential to creating a successful financial plan. What if your income is inconsistent? I really enjoy working with small business owners and this can be one of the most challenging financial issues they face.
The first essential piece to figure out will be your baseline personal budget. Start with the barebones essential budget. This should cover all of the bills you have to pay each month plus the basic necessities such as groceries and gas. Next figure out your goal budget amount. This will be a higher amount, it is that barebones budget with your “fun money” discretionary spending and savings goals built in.
Once you have those figures together you will move on to analyzing your business financials and work on your business budget. You have to determine what your business needs are before you can determine how well you can support yourself from the income each month. You are going to look at the past years financials to review a few key numbers:
You created a baseline budget for yourself, now do the same for your business. This number will tell you how much you have to leave in your business account each month. This will additionally give you your minimum sales goal. Your baseline business budget added to your minimum personal budget is the minimum your business needs to bring in each month.
Include your income needs as an expense in your business budget. This can be thought of as your paycheck.
Look for trends. Notice if there are certain months that sales are typically low, or the opposite times that sales are higher than normal. Besides income take note of times that expenses might be higher than usual. If you are in an industry that is seasonal this step is even more important for you. This will help you be aware of what to plan for in upcoming months.
As with any budget you are going to analyze your numbers, both personal and business, to see if there are any categories that need to be adjusted. If you are overspending in a category now is the time to be honest and think through ways to lower those expenses.
Now that you know the numbers, you need to work on making the numbers work. An effective way to do this is to get one month ahead and live off of those funds for that month. During the month you are letting the new funds coming in grow in the bank account. At the end of the month you will review the financials for that month, make sure the amount to cover the business budget is there, and determine what you are able to take as your income for the next month. Working in advance takes off the pressure that the money won’t come in when you need it to pay a bill and allows you to be more objective planning out the next month.
In months with a surplus you will put those extra funds in a savings account. In months where there is a deficit you will have the savings account ready to fill in the gaps and keep your budget balanced. You should periodically go back to the first step to review and adjust.
This is an overview on ways to make planning for the ups and downs a little bit simpler. That working budget will always be a work in progress, but if you commit to reviewing the numbers regularly and being intentional about setting any surplus funds aside you will find more stability in the month to month.
If the thought of reviewing your numbers and planning your cash flow is daunting or you’d like to discuss how a financial plan can help your small business, we are accepting new clients and would love to talk with you!