Starting your own business is an exciting way to pursue your personal and professional ambitions. And achieving budgeting success is crucial for small business owners like you. In fact, small businesses are the backbone of our economy. In the UK alone, there were 5.47 million small businesses in 2022, making up a staggering 99.5% of all businesses. These small enterprises play a significant role in job creation and contribute to the overall economy.
Budgeting plays a crucial role in the success of your business. By understanding and managing your finances effectively, you can create a realistic business plan and navigate the financial obstacles that may come your way.
To help you achieve budgeting success, we’ve put together a list of expert tips from seven successful SMEs:
Plan Ahead
Plan ahead, focus on business drivers, and track progress.
“Having a plan in place, even if it drastically changes, can also be brilliant for mental health, which can be a real issue among directors.”
Graham Davies, Founder & CEO, Addition
Think of budgeting as a roadmap for your business journey from point A to point B. It’s essential to put a plan in place before making major decisions. Avoid the temptation to spend all your funds immediately; instead, be cautious and create contingency plans. Simplify your plan by focusing on the factors that have the most significant impact on your business’s performance. Consider all potential costs, even small ones that add up over time. Set ambitious targets for your team and regularly monitor your progress toward achieving them.
Create a Cash Flow Forecast
Cash flow is the net balance of cash entering and exiting a business at a given moment. And it’s the lifeblood of any business.
“Use realistic revenue projections based on customer buying habits to create a cash flow forecast.”
Donna Torres, VP UKI, Planday
To create a cash flow forecast:
- Estimate your revenue based on customer buying habits in the past year.
- Determine how much of that revenue will go into your business’s pocket. For a lot of small businesses, the reality is that you’re taking in less sales than you would under normal circumstances.
- Identify your expected expenses for a typical month or year, including any unexpected ones. Take advantage of forecasting technologies and tools like Xero to gain real-time insights into your cash flow. This will help you to make informed decisions about the future.
Implement Retainer Fees
A retainer fee is an upfront payment made to secure or retain the services of a professional on an ongoing basis.
“Applying retainer fees for work can be a great way of securing longer-term cash flow stability.”
Rick Smith, Managing Director, Forbes Burton
Late payments can disrupt your cash flow and put a strain on your business. Protect yourself by implementing a policy of requiring upfront payment or retainer fees. This not only secures your income but also encourages clients to follow through with their commitments. Additionally, it’s important to build up reserves to cover unexpected expenses and ensure timely payment of your taxes.
Manage Accounts Receivable Effectively
Accounts receivable refers to the money that customers owe a business for products or services they have purchased on credit. It represents the unpaid invoices that the business expects to collect in the future.
“One of the most important financial measures for SMEs is improving your accounts receivable. At its best, it’s seamless, quick, and firm but polite. If any of these elements are missing, you need to enact some change.”
Sonia Dorais, Chief Executive Officer, Chaser
A recent report by the Federation of Small Businesses (FSB) found that 52% of businesses in 2022 experienced late payment delays. Many small and medium-sized enterprises (SMEs) lack a dedicated finance team to chase overdue invoices, resulting in financial strain. Implement efficient credit control and debt collection measures to ensure you’re getting paid for the sales you’ve made – and that you have the cash you need to keep your business operational!. Stay on top of invoicing and payment terms. Using tools like Chaser can help streamline your accounts receivable process.
Maintain a Healthy Cash Reserve
Maintain a healthy cash reserve for your business.
“Manage your cash flow by keeping three month’s minimum cash in the bank to cover your business’s expenses.”
Anna Morrish, Founder & Marketing Director, Quibble
Managing your cash flow is vital for budgeting success. Utilise tools like YNAB (You Need A Budget) to reconcile your finances, create reports, and monitor your net worth. Plan in advance and budget for future events and new hires.
Enhance your financial literacy
Financial literacy refers to having the knowledge and skills to make smart decisions about money. It includes understanding things like budgeting, saving, investing, banking, and managing debt. Being financially literate can help you make informed choices, achieve your financial goals, and avoid financial problems.
“I’ve found having good money management skills to be really important. When organisations improve their understanding of finances, they can do a better job of handling money, improve their ability to present ideas, and increase their chances of securing funding.”
Kate Welch OBE DL, CEO, Social Enterprise Acumen CIC
Financial management skills and the ability to pitch effectively can make a significant difference in securing funding for your business. Research shows that organisations with better pitching skills and financial literacy have higher chances of securing funding. Invest in improving your financial knowledge to strengthen your chances of budgeting success.
Here are some simple ways to improve your financial literacy and pitching skills:
- Learn on your own: Explore online resources, books, and articles about personal finance and presenting.
- Take courses: Look for workshops or online classes that teach financial literacy. For example, FutureLearn has a great set of courses to help with this. Why not try: Presenting Your Work with Impact
- Use apps and tools: Try budgeting apps and financial calculators to practice managing money, such as Zogo.
- Attend community workshops: Check local centres or libraries for free financial literacy programmes.
- Get professional advice: Consult with financial advisors for personalised guidance.
- Join programs: Look for initiatives by nonprofits or government agencies that offer educational resources.
Talk with your peers
Engage in online forums, communities and discussion groups to improve your knowledge and exchange your services with others.
“Boost your cash flow by offering your spare capacity through online business communities. I’ve been able to exchange my PR services for a range of services, including design work, such as business cards and banners, to HR services, travel, accommodation and staff incentives for my team.”
Sunny Bird, Founder, Sunny Bird PR
“Spare capacity” means having extra resources or capabilities available that are not currently being used. It can be used when needed to meet increased demand or handle unexpected situations in different industries. Joining platforms like BBX UK allows you to exchange your spare capacity for other goods and services. This can help you manage your cash flow more effectively and obtain essential services without additional costs.
To achieve budgeting success for your business, implement these expert tips and stay proactive in managing your finances.
Addition is here to support your growth
Our dedicated consultants can help you develop a tailored plan to navigate the financial challenges and plot a route towards success. Get in touch with us today to kickstart your journey to budgeting success!
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