Starting a business is exciting. You’re likely ecstatic about starting your own thing, but this excitement can lead to various mistakes. One of them is failing to come up with a budget for your business.
While this exercise might not be as exciting as making money, it’s the most important part of your business. Many entrepreneurs ignore this step and when they do, they rush the process and often suffer negative consequences as a result.
In this article, you’ll learn twelve tips for budgeting you can use to budget your finances as a young entrepreneur.
1. Business and Personal Finances – Don’t Mix
This is the first rule in business and your number one budgeting tip. Your personal and business finances should never see eye to eye. Separate them at all costs.
The reasons for the separation are obvious. First off, if you mix the two, it’ll be next to impossible to determine the amount of money your business requires accurately. On top of that, you won’t know how much the business brought in at any particular time.
This means it’ll be difficult to gauge or project future income for your business. In addition, it’ll be easy to fall into financial pits due to mix-ups.
By separating your finances, you maintain a healthy financial pulse, both in your business and personal life. Start by creating separate budgets and using different credit cards to maintain separation. Practicing this habit as early as possible is a big win.
2. Set Aside Money for Taxes
It’s the obvious thing to do, however, a huge number of business owners tend to leave out this important step, especially those new to the entrepreneurial scene.
Taxes are a recurring expense. For that reason, it’s always good for you to prepare by opening another bank account. In that account, put an amount equal to 35 percent of your net revenues or 20 percent of your gross revenues every month.
Failing to plan in advance for this recurring expense will attract penalties or even worse, an audit.
3. Maintain All Records
Records include your financial statements, a loan that you have taken from various lenders like personal loans, business loans, and receipts for each expense. Many entrepreneurs fail to keep such records, especially those they deem as small which is a wrong move. By doing this, you’ll fail to account for the money used for the business. Consider that the small expenses can pile up over time, creating a snowball effect that will hurt you in the long run.
Also, when budgeting you’ll end up forgetting about the small expenses that are still a part of your business. Therefore, it’s important to keep all your records safe to get a better understanding of your business in terms of growth.
4. Negotiate with Your Suppliers
Suppliers form a crucial part of your business. In fact, they draw the most amount of money from the business. This is why you need to have a sit down with them to discuss the prices of various commodities you buy from them.
Make inquiries on whether you can get discounts from suppliers if you buy goods in bulk or if you make early payments. If you cut down on the costs at the supplier level, you have a greater chance of increasing your profit margins.
5. It Pays to Do Your Research
It’s always advisable to look past your initial offer. More often than not, you’ll find a better deal waiting for you. Therefore, it’s crucial for you to dig deeper to weigh at least 4 options before settling on the final deal.
The deals could be the same, but the fact that you took an initiative to search for a better deal will go a long way in helping you look for better deals in the future.
6. The Budget for the Unexpected
No one knows when an emergency will hit. It is for this reason that financial experts advocate for budgeting and planning. With a budget, you can prepare for surprise costs and other miscalculations.
Rounding up your business expenses is one way of dealing with such eventualities. However, make sure you don’t make dramatic changes that will negatively affect your budget.
7. Consider Freelancers Instead of Employees
Freelancing services are the best way to kickstart your business. Whether you need a graphic designer, web developer, or writer, consider working with a freelancer instead of a full-time employee. This will save you a lot of money including training, hiring, taxes, and payroll fees among others.
8. When You Hire, Go the Long Haul
Hiring a single employee is no joke. There’s much more to the process of hiring employees than you can imagine.
Apart from the salary, you’ll want to budget for the training materials, insurance, federal and state taxes, payroll fees, and any other additional costs involved. This can take up at least 30 percent of the total wages and salary of a single worker, so make plans in advance.
9. Go for Second-Hand Equipment
This can be office furniture or electronics needed for your business. Instead of buying brand new items, go for used equipment to cut down on your expenses. You can also save by renting some equipment instead of buying. However, this piece of advice should be taken with a grain of salt.
If you feel there’s a need to buy a new piece of equipment to enhance productivity, then the best way would be to buy new. It might not be worth the risk to buy used and end up paying more for maintenance, thus straining your finances.
10. Office Space
When starting out, you’ll want to put your best foot forward. This includes leasing out office space to impress potential customers. While that might be a good move in terms of presentation, it will dent your pockets.
Working at home is the better alternative because you’ll save on rent money. This is money you can use to increase productivity and revenue.
11. Purchase Insurance Coverage
Just as young people don’t feel the need to purchase health insurance, so do the new entrepreneurs opt out of insuring their businesses. The main reason for this is they feel that it’s an added expense when they don’t really have much in terms of valuable assets.
However, it’s important for you to take out an insurance policy to cover you against any unforeseen eventualities. Remember, prevention is better than treatment and you can start with incorporating insurance premiums in your budget.
12. No Man is an Island
No man has a solution to every problem they encounter. That is why you need to ask for help even if you feel you are the best in your field. Teams are better than going at it alone.
Seek the services of an auditor to look at your business financials, or a bookkeeper to help you to organize your records. They might catch an error in advance before it ends up being an iceberg to your business.
There are many other ways you can budget to improve your business. While budgeting might not be exciting for new entrepreneurs, it’s not a task you want to brush off. With the tips about budgeting highlighted in this article, you can propel your business to the next level. All you need is to take an initiative.