If there’s one thing the year 2020 taught us was to cut unnecessary expenses as much as possible in order for our business to survive.
We were forced to balance our expenses with our income (aka; budgeting). We got a firm hand on what our business is spending, what we could afford to spend, and what our priorities were. Small business owners fought hard and adapted quickly to stay open and found new and creative ways to service customers.
If you started a business in the first three months of 2020, you faced the toughest battle you ever could before your business even got off the ground. You have now joined the ranks of many seasoned business owners who have struggled through some tough times.
This article will point out a few strategies for you to use (if you have not done so already) to help create a better business spending plan. It may be difficult but not impossible.
Reduce Costs with a Budget Cut
First, let’s review some budget cutting strategies:
- If you are currently carrying a balance on your business credit card, contact the credit card company to request a lower interest rate. Better yet, apply for a new credit card with 0% interest for the next 12 months and transfer the balance onto that new card. Tip: continue to make payments on the 0% interest card to help lower the balance when that introductory period is over. Also, if you need to use that card, pay the purchases off immediately and add a little towards the existing balance.
- If you have loans from other creditors, request to make interest only payments for at least 3 months while you restructure your budget.
- Shorten your business hours, if possible, to reduce payroll and utility expenses. Choose the least busiest day of the week.
- Reduce inventory to a minimum but plan for small spikes in customer traffic, especially around holidays. Keep high demand inventory.
- Request your insurance agent to search for better rates on your business liability, vehicle, and worker’s compensation insurance.
- If you have a copy machine rental contract, contact the representative to adjust the contract to a lower monthly rate.
Breakdown your Small Business Spending
Next, let’s break open the books to review the spending habits and revenue of the past to create a new one for this year.
- For revenue, let’s speculate there will be at least a 7% increase over the total amount made last year. Take last year’s revenue and multiply by 7%. Add that total to last year’s sales and that will hopefully be your new revenue this year. This will be your budget starting point. (7% is a theoretical figure not based on anything other than the hope that more customers will venture out this year and the economy improves.)
- Hopefully you will be able to save some money from the budget cutting strategies above so you can utilize the savings elsewhere in the better business spending plan you are about to create below.
- Go through each of your expenses on your Profit and Loss statement for the past two years to come up with an average for each expense for the new year. This will take some thought because two years ago you might have spent too much for a particular expense and in 2020 found out it was actually not a priority and spent half as much. Plus, you might have achieved some of the budget cutting strategies above and will want to use the new expense amount rather than the average over the past two years. You will also want to decide what is essential for your business and what is not at this time.
Use a Small Business Budget Template
To help you create this better business spending plan I have listed below two of my favorite templates:
- The Budget Template by Capterra.com is great for small businesses already in operation. All you have to do is plug in your new yearly budget (see tabs on bottom of the template) and it auto-fills the monthly budget for you! Click Here for template.
- The Startup Budget Template by Gusto is great for new businesses that are planning to open. Click Here for template.
If you currently use QuickBooks Pro desktop, it already has a budget template built in to the software that uses your current Profit and Loss items. At the top menu bar choose “Company”/”Planning & Budgeting”/”Set up Budgets.” For QuickBooks Online click on the gear icon/Tools/Budgeting.
DMS is committed to making sure your business grows in the coming year. Please contact us to help you create a better business spending plan for 2021 and beyond.