The Secrets of Financial Budgeting For Big Businesses and Freelancing Success
Cash flow challenges are the fundamental reason why companies that fail go out of business.
If you are serious about making your small business profitable, then budgeting your hard earned money effectively is crucial to the security of your organisation.Even if you only own some minimal freelancing concern, or manage your multi million dollar business, rigorously monitored finances in addition to a positive cash flow, are critical elements in commercial success.
When founding a new enterprise it might seem impossible to put together a budget without any financial background on which to base sales and expenses. However a business plan, before you even start, with some idea of costs and turnover is essential to evaluating the viability 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 houses, 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 businesses, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.
Our electricity prices comparison company, like any business, has two main categories of company finance, the income and the expenses.
Under the expense category there can be other sub-categories mainly falling into 2 seperate areas of controllable expenses and uncontrollable expenses. While many business directors and freelancers believe they can control every expense involved in their organisation, 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 electricity prices are an example of this and have been the reason a number of small airline and transportation businesses going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, transportation 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 making redundant employees and cutting back on advertising. However, living by a budget may help maintain profitability but could also turn against you in the end.
Depending on the viability of your business it may be a better investment to bite the financial bullet on employee wages and still provide good 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 staff. If no one takes care of the clients, it will not be long until there are no more clients to care for.
There are two ways to budget your business finance and these are through set amounts or as a percentage of income. Many companies 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 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 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 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 perks determined by the organisation. These need to be calculated into costs when recruiting people into the organisation, unless you make extensive use of freelancing companies.
While you may feel that a budget is hard to establish for a new organisation, it is essential to establish a healthy and sound financial base on which success can be built for the coming years.
About the Author: Roger Davies, is senior web developer for Advanta Productions a web development company located in the Midlands serving businesses in the Nottingham, Derby and Loughborough areas. Roger and his team have created literally hundreds of web sites. If you need your website developing or want to advertise your business on-line contact Advanta on 0845 22 55 805 or visit the web site.
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