Smart Budgeting Tips For Small Business Owners
Oct 12, 2020 10:42 PM EDT
Poor budget management is the main reason businesses fail. In fact, 80% of businesses fail within their first 18 months due to lack of operating capital, Forbes reports. If you're a small business owner, smart budgeting is essential to keep your finances on track and your business running smoothly.
Strengthen your credit score
Whether it's now or in the future, you'll eventually need credit to grow your business. Your personal and business credit score determines your ability to qualify for business financing. Even if your business credit is strong, lenders also take your personal credit into account. The higher your personal credit score, the more and bigger business loans you can choose. However, creditors often make mistakes on credit reports, which can damage ratings unfairly. Fortunately, there are companies designed to help repair poor credit, and in some cases, experienced lawyers can assess your credit report and ensure every listed item is accurate and substantiated; otherwise the creditor must delete or correct the item. As a result, your credit score improves.
Create a risk analysis
Risk analysis helps you make better business decisions and avoid running into expensive problems. Start by identifying specific situations that may pose a risk to your business finances; this varies depending on the nature and location of your business. Compile identified potential risks in a document, and assess the financial damage each risk could cause, as well as how difficult recovery would be. You can then implement controls to reduce risks: analyze past patterns to predict your income cycle, as well as the likelihood and financial impact of a risk occurring. You can use this information to help determine the size of your business' emergency fund.
Track your revenue cycle
Tracking your revenue cycle (aka your sales and profits) as it ebbs and flows throughout the year plays an important role in budgeting correctly. With a defined revenue cycle to review, you can better estimate when you can expect to have money coming in and when you'll need to rely on savings to cover the slower times. As such, you can ensure you put aside enough operating funds for your business to remain intact through quiet periods before the more profitable times begin.
Budgeting is key to business success. By strengthening your credit score, creating a risk analysis, and tracking your revenue cycle, you can help your small business thrive long term.