Starting a business is an exciting way to chase your personal and professional goals, but managing your budget is critical for success. Small businesses are vital to the economy, making up 99.5% of all businesses in the UK in 2022. These enterprises play a key role in job creation and economic growth.
Effective budgeting is essential for navigating financial challenges and building a solid business plan. To help you succeed, here are expert tips from seven successful small businesses:
Plan Ahead
Planning is essential for staying on track and keeping your business focused. Graham Davies, Founder & CEO of Addition, emphasizes that having a plan in place, even if it changes, can help both the business and your mental health. Think of budgeting as a map for your business journey. Avoid overspending early on, focus on what drives your business’s performance, and include all costs, even small ones. Set high goals for your team and regularly check your progress.
Create a Cash Flow Forecast
Cash flow—the money going in and out of your business—is crucial for survival. Donna Torres, VP of Planday UKI, advises using customer buying habits to create a realistic cash flow forecast. Estimate your revenue based on past behavior, account for expected expenses, and consider using forecasting tools like Xero for real-time insights.
Implement Retainer Fees
Rick Smith, Managing Director of Forbes Burton, suggests using retainer fees to secure cash flow. Upfront payments protect your business from late payments and ensure you have the funds to cover costs, including taxes. Build reserves for unexpected expenses to keep your finances steady.
Manage Accounts Receivable Effectively
Getting paid on time is key to staying afloat. Sonia Dorais, CEO of Chaser, notes that many small businesses struggle with late payments, which can cause financial strain. Improve your invoicing process, use credit control systems, and consider tools like Chaser to keep track of payments and ensure a steady cash flow.
Maintain a Healthy Cash Reserve
Anna Morrish, Founder & Marketing Director of Quibble, recommends keeping at least three months of expenses in cash reserves to cover any financial gaps. Use budgeting tools like YNAB to track your finances and prepare for future needs.
Enhance Your Financial Literacy
Understanding your finances can help you make better decisions and secure funding. Kate Welch, CEO of Social Enterprise Acumen CIC, stresses the importance of financial literacy in managing money and improving your chances of getting financial support. Invest in learning more about budgeting, debt management, and financial planning to strengthen your business.
Talk with Your Peers
Sunny Bird, Founder of Sunny Bird PR, highlights the value of exchanging services with other businesses to boost cash flow. By offering your extra resources through platforms like BBX UK, you can trade services with other businesses, helping to save money and maintain steady operations.
Improving your budgeting skills and financial literacy, while networking with other businesses, can make a significant difference in your small business’s long-term success.