As the new year opens, it is important to take a look at your budget and make some strategic decisions that will position your company for a successful 2019.
The process starts with having a firm grasp on your income and costs. As seen in the recent Entrepreneur’s Startup Success Guide for 2019, this work lets you look closely at where expenses can be cut and focus on strategies for growing revenue.
Here’s a step-by-step guide to assessing your business budget.
1. Project Your Business Income
Set your projected monthly income, based on the past year’s results.
Take your gross annual revenue and divide by 12 (or fewer if your business is less than a year old) to get a sense of your per-month income. Younger businesses should use caution in forecasting future income as initial sales results are not reliable measures long term.
Many businesses have major seasonal variations in sales. Understanding these cyclical swings in revenue helps you to get a sense as to when expenses particularly might need to be tightened or expanded. As you plot your monthly income, you may want to adjust the monthly rates to account for these fluctuations.
Have you mapped out what your growth strategy is for 2019? You can base growth on several factors, including what you did for growth in previous years. Knowing what your projected revenue is for the year helps to adjust those monthly projections. It also gives you a baseline to compare projected versus actual income.
2. Assess Your Business Costs
It behooves any business owner to have a firm grasp on their expenses, which usually fall into one of these broad categories:
- Labor. Do you know how much your salaried and hourly employees are paid, how much their benefits cost, and whether you can add or replace employees?
- Raw Materials and Inventory. If your business makes things, materials are a major cost factor. If you sell things, you still need to buy and store product.
- Taxes. While there are many tax advantages to owning your own business, knowing what, if any, you will owe makes for fewer surprises.
- Payments. Whether you rent a store or office space or have loans that need to be repaid, these recurring costs are a major draw down on revenue. So too are ongoing services (such as software or utilities) and professional advisors (like your accountant and attorney).
3. Evaluate Cost Centers
Now comes the hard part, taking a close look at your expenditures and determining what, where and when to consider cutting. Often what a business needs at its inception is not what is needed a few years or a few months later.
Here are a few areas where it really pays to examine opportunities to save money:
- Vendors. Take a close look at who you use for everything from cleaning supplies to payment card management. Take a look at your contracts, especially those that renew automatically, to see if prices have changed and you would be better off looking at some other options.
- Subscriptions. Did you sign up for trial subscriptions of software, business services, or other subscriptions and forget to cancel? These costs could very well be eating into your profits.
- Employees. While it is tough to assess employees and make difficult personnel decisions, you owe it to your business to examine your team. Are they working efficiently? Are they meeting revenue projections? Are they pulling their own weight?
- Location. Have rents for office space changed in your area? Are you getting the foot traffic you expected? The answers can help inform whether it is time to look for new digs.
At Benetrends we help businesses with a range of services, including using 401(k)/IRA funds for business funding to operational functions like retirement plan and others. To learn more about how Benetrends can help your small business, schedule a consultation today.