Business budgeting, just like personal budgeting, is imperative for financial peace of mind. In the case of business owners, says René Roux (Head: Sanlam Liquid), proper budgeting can also help ensure the long-term success and sustainability of your business. “Most businesses, regardless of size, will experience an ebb and flow in their revenue, and external factors like fuel and electricity hikes can occur at the most inopportune times. Planning around these eventualities, and budgeting for them, can make all the difference in how your business deals with these kinds of upsets.”
Estimating and balancing income and expenditures, whether real or anticipated, is important because it helps a business avoid spending more than it’s taking in. “Having a good overview of the cost of operations, profits and cash in hand not only ensures healthy finances, but it can also give you an idea of whether you are in a position to grow your enterprise”, says Roux. “Good budgeting can assist in creating a financial roadmap for your business, and inform choices on if and when you can expand your operations.”
The all-important emergency fund
Ideally, says Roux, you shouldn’t even think of expanding or taking on financial liabilities if you don’t have some emergency savings available to help you through an everyday crisis that may require you to spend money immediately. This includes unexpected expenses like fixing equipment, suddenly replacing an employee or hiring temporary help. “Having an emergency fund in place will help ensure that you can cover unexpected costs without having to compromise your profits or take on additional debt”, says Roux.
A great benefit of business budgeting is the ability to review and limit how much money is spent on certain operations. “Knowing exactly how much you are paying for what puts you in a position to shop around for better – and cheaper – alternatives, which will bring down your overheads.” It can also help you identify where you have a little extra cash to sink into loans and long-term debt. “Paying off debts faster not only improves your eventual cash flow, but it also means a saving on the interest you would have paid over the full term of the liability”, says Roux.
An early warning system
According to Roux, a budget can be incredibly useful when it comes to identifying wastage and areas of concern. “Tracking your business budget on a regular basis can help you spot areas you should investigate and allow you to implement corrective action timeously. If sales are progressively declining you may want to consider increasing your advertising to target a broader market or take a closer look at your pricing”, says Roux. “Monitoring your performance over the next few months will give an indication of whether your initiatives are bearing fruit.”
Forecasting future growth
Business owners don’t always realise that budgeting can assist in the planning of future growth and expansion. By reviewing your budget regularly and limiting expenses as mentioned above, you can free up spare cash in your budget. Putting the money you save in reserve, will allow you the flexibility to grab business opportunities as they arise. “By designating certain funds to an expansion strategy, you can limit the risk to your business’s day to day operations and put yourself in a position to make quick decisions. An emergency fund also affords you a buffer if your business takes an unexpected downturn due to slow consumer spend and economic downturns” Roux adds.
The bottom line, says Roux, is that budgeting is an essential tool for business owners to forecast and plan current and future income and expenses. “If you as a business owner use budgeting effectively, you can ensure that you have enough money available to keep your business up and running, capitalise on opportunities for growth, increase your competitiveness and have a safety net in the form of an emergency fund.
Sanlam Liquid offers savings solutions to help you manage your business finances. For more information on our offering, call 0860 547 843.