The government’s announcement of the yearly budget is followed by extensive and aggressive drawing-room conversations all over the country. Everyone has something to say, different narratives, suggestions and advice. Most believe increasing the defence budget was the worst decision ever, some think the budget for education should’ve increased, and others complain about the taxes. But the question is, Are we as passionate about our personal business budgeting as we are about the country’s budget?
This is where the problem lies, a survey shows almost 61% of businesses do’nt even make a budget. As the famous saying goes, “If you fail to plan, you plan to fail”, which is why 82% of small businesses fail due to poor cash flow management as per US Bank’s study. You might question, if you have a great idea and your business seems to be growing rapidly, why would you need a budget? Stick with us to know what is business budgeting, why is it so crucial and how can Metric help you with it.
What is a budget?
A budget is simply a spending plan based on income and expenses over a specified future period of time that is usually compiled and re-evaluated on a periodic basis. This documented financial plan gives you more financial freedom and a life with much less stress.
Why is budgeting important?
Analyze your Growth
Just when you think you’re on the right track, your customer base is growing, your revenue is increasing, you happen to be at the highest risk of losing track of your finances. Since with growth comes an urgent need to hire, and increase resources which in turn increases your spending. If you don’t have a budget you’d destroy your business at the prime growth.
Avoid Overspending
It allows you to oversee and better understand whether your business has enough revenue (incoming money) to pay its expenses. Using a budget can help you make more informed financial decisions.
Improves Chances to Scale Up
You can not scale up if you’re not aware of the ins and outs of your business finances. Tracking revenue, expenses and cash flow lets you set realistic short and long-term goals for business growth. Additionally, it lets you trim costs to avoid overspending and prepare for upcoming expenses. Maintaining a record of finances lets you come up with innovative schemes to make the best of busy seasons and slowdowns.
Pitch Investors
Keeping track of every dollar is a good practice for all businesses however it’s exceptionally important for startups running on initial capital from third-party investors. Budgeting lets you have documented finances and business growth statistics at all times. This transparency makes it easier for the startup to raise capital in the future.
Prevent Financial Mishaps
Data is king during times of uncertainty. When you don’t have your financial data sorted, you’d end up making moves detrimental to the company’s growth that could’ve easily been avoided if only you had observed the company’s past performance patterns. Managing finances is no easy task, but budgeting makes it manageable.
Take Well Planned Financial Decisions
The right move at the right time takes you in the right direction. But to know the right move and the right time is the real deal. Budgeting lets you make informed decisions based on past spending patterns. To make it easier, if you have your weekly expenses logged for the past 6 months, you can predict the next 6 month’s expenses thus making the right estimate while exploring new avenues.
Steps to make a budget:
Examine your revenue
List all your income sources and know your exact incoming capital on a monthly basis. This bookkeeping lets you observe seasonal patterns in your business growth.
Categorize costs in revenue buckets
Dividing your costs into Capital and Operational Expenditure is a great way to categorize costs. This will force your capital spending to align with your long term financial goals.
Determine fixed and variable costs
Fixed costs are all costs that are necessary on a recurring basis for the operation of your business. Every business has a few unique daily, weekly or monthly recurring expenses. Rent, Supplies, Debt Repayment, Payroll, Taxes and Insurance are generally fixed costs.
Variable costs are expenses that do not serve as a basic operations necessity, but rather are good to have or occur randomly depending on circumstances. Spending on employee education, marketing costs, replacements and maintenance, and utilities all come under variable costs.
Set aside an emergency fund
The odds aren’t always in your favour. Unexpected one-time costs often pop up at already tough times. Make sure you have 3 to 6 months’ worth of expenses in an emergency fund that can be transacted easily and plan for contingencies within your budget. The emergency fund relieves you from chaotic mismanagement followed by a high unexpected cost and saves you from drowning in debt.
Accommodate Taxes and Interests
Research tax laws and interest rates, if any, on your loans and investments to accurately include these costs in your budget. Ensure that you accommodate these factors before setting a target.
Create Financial Statements
Forming financial statements might seem like a painful challenge, but all your logging goes to waste if you don’t deduct conclusions from this data. A cash flow statement tracks the cash you receive and the cash you spend in an accounting period, thus distinguishing between sales and actual cash brought in. Similarly, a Profit and Loss Statement is your total revenue after deducting all the costs. These statements enable you to make the right decisions in the future.
Integrate with all Departments
Run this prepared budget through all departments of your company to assure the budget is realistic as per all the teams involved. Hold discussions involving all department heads to make necessary amendments to the budget if needed.
Now if like us you believe being a founder you already have so much on your hand, you can’t spend your days crunching numbers and fixing budgets. You’re absolutely right! Well, the thing is, behind every good businessman is a great accountant. As a startup founder, you must be focussing on growth and sustainability while getting briefed by your accountant from time to time.
Your small business can’t afford an accountant, so you’re thinking of dropping the idea altogether? Stop right there. You need not worry because Metric has you sorted. Metric, your go-to accounting app has a solution to all your financial challenges.
How does Metric help you with budgeting?
Real-time Insights
Analyzing your finances at the end of the month, just to realize you made such a foolish move a week ago just because you weren’t informed enough. This would leave you in an endless loop of regret and distress. Metric streamlines your financial processes by giving you access to real-time insights anytime anywhere through its real-time financial dashboard.
Limits Inefficiencies
The effectiveness of a budget also depends on how well any projected goals have been achieved by your business. Without financial assistance, all your productivity would go into handling finances and your growth would suffer. Metric automates all your repetitive accounting tasks, thus allowing you to know your metrics in real-time, all the time. This increases the transparency, efficiency and effectiveness of your business.
Unexpected Expenses
No matter how much you try, unexpected expenses are inevitable. A great way to face such a challenge would be to set a cash flow forecast. Metric’s cloud-based transaction record not only keeps a record of all your past expenses but predicts forthcoming routine expenses for you to let you better strategize under unforeseen circumstances.
Handles Bills and Invoices
Metric’s STARTUP financial plan includes cloud-based bills and invoice uploads. Upgrading to the GROWING financial plan would further enable the user to benefit from Metric’s audit-ready accounts maintenance feature.
Budget Categorize
Growth has its own challenges. A fast-growing business requires you to evolve and accelerate your operations at the same pace in order to sustain. You might need to recruit urgently to increase your team or introduce a new department, and your expenses and resource spending would exponentially increase as well. Metric’s free version provides custom profit-loss, revenue, and expenses reports that let you make intelligent decisions on time.
Process Payrolls
You can start your journey with Metric from it’s free model and upgrade as your business grows. The GROWING financial plan offers Payroll processing along with financial statements to cater to a wider range of your business needs.
Easy User Interface
The prime feature Metric’s developers focus on is the ease of use. We claim you can ace your way to handling your finances with Metric with absolutely zero financial experience. The clean, intuitive and user friendly interface makes it accessible for your grandmother and kid alike.
If you’re one of those people who has always avoided statistics, the mere thought of budgeting, taxes, and invoices scares you to death, then you’re at the right place. Start your journey with Metric today for a stress-free and managed business. Write to us about what your fear most in financial management. We’re evolving and always open to feedback!