8 Smart Budgeting Tips for Small Businesses

(Baonghean.vn) -If you run a small business on a relatively limited budget without a comprehensive plan, it can be difficult to track and manage finances. To help small business owners manage their finances, experts offer eight tips for smart budgeting.

1. Identify and understand the risks

Every business venture has a certain level of risk that can potentially impact finances. Therefore, small business owners need to be aware of both long-term and short-term risks to plan accurately for the future.

For example, how would a change in the minimum wage affect employees? Is your company located in a location at high risk of natural disasters? Do you rely heavily on seasonal workers?

Once you have mapped out the threats to your business performance, you will have a clearer picture of the bigger picture and be able to develop contingency plans.

2. Choose the right customers and partners

It is quite common these days that many businesses are stuck with bad debts caused by customers.

Customers are your greatest asset, but you also have to be aware that they are likely to become your liability. This is a difficult task, but choose customers who have the business capacity and the ability to pay on time.

3. Minimize living expenses

If you are running your first small business, this rule is especially important in the first few years. Figure out how much money you need to live on each month and withdraw that amount from your business's income; invest the remaining profits so that those funds can support growth.

It can be exciting to make money, but many new business owners spend it on vacations or homes. Resist that urge. Wait until your business is well-established, then you can start taking those profits and enjoying them for yourself.

4. Don't hire employees too early

For small businesses, the biggest expense is employee wages. When things get busy and you feel like you’re being overworked, it’s time to hire a new employee. But make sure it’s necessary.

Never hire staff until you really need them. Always hold your current staff to the highest standard to ensure they perform to the best of their ability.

5. Use the "JIT" strategy

money management rules for small business

“JIT” stands for “Just In Time”. This is a strategy to reduce the cost of borrowing money and inventory.

If you estimate you'll need $100,000 to cover expenses next year, don't borrow the entire amount at once; otherwise, you'll be paying interest on the entire amount if you don't use it all by the end of the year.

Instead, borrow $25,000 for the first two months; then borrow another $25,000 for the next three months. By following this rule, you will reduce the total amount of interest you pay to the bank, saving money over the long term.

6. Agreement with supplier

When dealing with outside vendors such as food, delivery services, security services, etc., do not hesitate to negotiate the terms of the contract. Choose vendors who allow you to pay after 30 days of receiving the service invoice instead of paying immediately.

That grace period allows you to better manage your money and prioritize your bills. Many providers offer this.

7. Don't spend money on payroll deductions.

State tax law requires business owners to set aside a certain amount of money in addition to employee salaries such as social insurance, health insurance, union funds, unemployment insurance for each payment period. Businesses will have a certain grace period before having to pay this fund.

As a business owner, it is important to keep these funds separate from other funds. Do not use these funds for investments or to cover day-to-day expenses.

Instead, put money in a separate account that you won't touch. It's a good habit that will prevent your business from running into financial trouble at the end of each month.

8. Check your budget regularly

money management rules for small business

A business's budget is never fixed, it will change as the business develops. Regularly reviewing the budget will help you better manage and control financial decisions; because you will know exactly what the company's spending capacity is compared to the amount of money the project is bringing in.

Use last year’s market trends to help you determine what this year will look like. Once you understand your business’s budget needs, you can accurately forecast a budget set aside for emergency funds or unforeseen expenses.

Ngoc Anh

(Synthetic)