With 2019 coming to an end, it is time to take stock of the year that has gone by and prepare for the days to come. If you are a business owner, then this is the right time to prepare your 2020 business budget. Budgeting in advance helps you to understand your cash flow situations and profitability, deal with any financial needs, and plan for tax payments.
With only 50% of all small businesses surviving beyond 5 years, budgeting effectively can be a strategic tool to take your business to the next level. Here are 5 tips for you to plan your next business budget smartly.
The first step is to review the current year, i.e. 2019’s financial statements carefully. You will also need to see how the budget planning for the current year compares with the actual incomes and expenditures. This will give you a good idea about what to incorporate in the next budget.
Every business has some fixed expenditures that need to be accounted for. These could be payments like rent, salaries, insurance premiums, mortgages, and taxes. You will also need to budget for spending on office supplies, technology, fuel, professional memberships, etc.
The general practice for small businesses is to set aside about 25% – 30% of their incomes in their budgets for the expenses.
While it is not possible to accurately project your income, you must have a realistic estimate while budgeting. If you overestimate then chances are high the expenditures might go up in anticipation. On the other hand, underestimation can limit you in your risk-taking abilities, thus stunting your business growth.
Setting aside a fund for contingency is not only a good practice but also essential to running a business. When planning for your next year’s budget, make sure to have a rainy day stash that will come in handy during difficult times.
Needless to say, planning and then forgetting about your budget is not acceptable. To ensure that your 2020 budget (or any year for that matter) is on track, you will have to review your expenditures and incomes regularly and see if they are on track. That way, you will be able to take timely action in case something does not go according to the plan.
With smart and realistic budgeting, you can set the path to achieve new business successes in 2020. At Foster Financial CPA, we assist our clients who are looking for financial and tax advice. Contact us today to know more about our services and learn how we can help you in this regard.