Cash flow challenges are the fundamental reason why companies that fail go out of business.
If you are seriously interested in making your small business profitable, it follows that controlling your money effectively is crucial to this success. Intended for finding new work this could very well be my favourite website which I take advantage of every day as the predominant way to obtain new assignments.
When starting a new enterprise it might seem difficult to put together a budget without any financial history on which to base sales and costs. However a business plan, before you even start, with some idea of costs and revenues is vital to determining the potential of a organisation, even if you are just planning to setup a work at home freelancing operation. It might seem like guesswork to start with, but a tentative budget can be established with some thought and projections of future business. From some past experience in refurbishing properties, I always say ‘think of a figure and double it’ and then you will be near the mark. I think this is true for other companies, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.
As with all businesses our become a doctor business has two categories of company finance, income and expenditure.
Under the business costs category there can be other sub-categories often falling into two main areas of controllable expenses and uncontrollable expenses. While many business proprietors and freelancers believe they can control every cost involved in their company, this is not always the case. Some things such as services costs, the amount of rent and other supposed fixed costs can, and do change, with the owner having no control. For example the recent increase in oil prices are an example of this and have been responsible for a number of small airline and transportation businesses going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, insurance and building repairs can be subject to a budget, but they are considered controllable expenses. If the business begins to reduce, you can control some of these expenses by laying-off staff and cutting back on advertising. However, living by a budget may help maintain profitability but could also be counter-productive in the long run.
Depending on the viability of your company it may be a better option to bite the financial bullet on employee wages and still provide excellent customer service to the remaining clients until business picks up again, or consider outsourcing and freelancing for when you need a bit of extra help but without having to hire new employees. If no one takes care of the clients, it will not be long until there are no more clients to care for.
There are 2 ways to budget your business money and these are through set amounts or as a percentage of turnover. Many businesses will budget their controllable expenses by the pound and non-controllable by percentage of revenue. Obviously a good part of the owner’s time is going to be based on bringing sales into the organisation and how much they have to spend on controllable expenses will be in direct relation to income. With any upturn in business the owner will probably need the extra help to take care of the business so a percentage of income will go to more wages, thus freeing the owner to focus on generating additional income.
There are many other costs that fall into the payroll account such as worker’s compensation charges, National Insurance tax paid by the company and paid vacation time or other perks determined by the company. These need to be calculated into costs when recruiting people into the business, unless you make extensive use of outsourcing services.
While you may think a budget is impossible to establish for a new company, it is vital to establish a healthy and sound financial base on which success can be built for the future.
About the Author: Roger Davies, is the web design team leader at Advanta Productions. Advanta was formed in 2004 to provide highly affordable, highly skilled website development and e-commerce web design services to businesses in the Midlands areas. Roger’s team work on website development and e-commerce web design projects for successful businesses advertising and selling via their websites. All enquiries to 0845 22 55 805 or at the Advanta website.