The Secrets of Financial Budgeting For Big Businesses and Freelancing Success
Cash flow problems are the fundamental reason why companies that fail go out of business.
If you’re seriously interested in making your small business profitable, it follows that controlling your money effectively is critical to this success. No matter whether people run a vast or modest industry, success is reliant on wisely monitored finances and a healthy cash flow, even mearly freelancing your company will have to have an amount of up front capital from time to time, which calls for a positive cash flow.
When starting a new business it might seem impossible to put together a budget without any financial history on which to base income and expenses. However a business plan, before you even start, with some idea of expenses and revenues is essential to assessing the potential of a business, even if you are just planning to setup a home based 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.
The ’get a bofriend‘ website business run by one of our clients, as with any business, has two distinct categories of business finance, income and expenses.
Under the business costs category there can be several sub-categories often falling into 2 distinct areas of controllable expenses and uncontrollable expenses. While many business directors and freelancers believe they can control every expense 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 the reason a number of small airline and transportation firms going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, transportation and advertising can be subject to a budget, but they are considered controllable expenses. If the business begins to fall off, you can control some of these costs by laying-off staff and cutting back on marketing. However, living by a budget may help maintain profitability but could also turn against you in the end.
Depending on the viability of your organisation it may be a better investment to bite the financial bullet on employee wages and still provide excellent customer service to the remaining customers 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 customers, it will not be long until there are no more clients to care for.
There are 2 ways to budget your business finance and these are through set amounts or as a percentage of revenue. Many businesses will budget their controllable costs by the pound and non-controllable by percentage of income. Obviously a good part of the owner’s time is going to be based on bringing money into the business and how much they have to spend on controllable expenses will be in direct relation to sales. With any increase in sales 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 sales.
There are many other costs that fall into the payroll account such as worker’s compensation charges, National Insurance tax paid by the employer and paid vacation time or other staff benefits determined by the law. These need to be calculated into costs when recruiting new employees into the business, unless you make extensive use of outsourcing companies.
While you may feel that a budget is impossible to establish for a new company, it is essential to establish a healthy and sound financial foundation on which success can be built for the coming years.
About the Author: Roger Davies, The senior senior web developer Advanta Productions manages an e-commerce web design company at the centre of the Nottingham, Derby and Loughborough countryside and has overseen the team who have created hundreds of web site development projects. If you’re not sure how to get your website development started or want to advertise and sell on-line contact Advanta on 0845 22 55 805 or visit the website at www.advantapro.com .