The Secrets of Financial Budgeting For Big Businesses and Freelancing Success
Cash flow deficiencies are the fundamental reason why companies that fail go under.
For anyone who is seriously interested in making your business profitable, then budgeting your dollars efficiently is critical to the security of your organisation.Whether you run a straightforward work from home firm freelancing admin work or manage a multinational corporation, properly handled accounts and in particular a balanced business cash flow, will be essential.
When starting a new company it might seem hard to put together a budget without any financial history on which to base income and expenses. However a business plan, before you even start, with some idea of expenses and turnover is essential to assessing the viability of a business, even if you are just planning to setup a home based freelancing business. It might seem like guesswork to start with, but a tentative budget can be established with some thought and projections of future business. From some past experience in renovating houses, I always say ‘think of a figure and double it’ and then you will be near the mark. I think this is true for other businesses, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.
As is the way with all businesses in our hotels in Brighton business we have the same two areas of business finance, the income and the expenses.
Under the expense category there can be several sub-categories usually falling into 2 distinct areas of controllable expenses and uncontrollable expenses. While many business owners and freelancers believe they can control every cost involved in their company, this is not generally the case. Some things such as services costs, the amount of rent and other supposed fixed costs can, and do change, with the owner having no control. For example the recent increase in gas prices are an example of this and have been responsible for a number of small airline and transportation companies going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, transportation and building repairs can be subject to a budget, but they are considered controllable expenses. If the sales begins to reduce, you can control some of these expenses by making redundant staff and cutting back on advertising. However, living by a budget may help maintain profitability but could also be counter-productive in the end.
Depending on the viability of your business it may be a better investment to bite the financial bullet on employee wages and still provide good customer service to the remaining clients until business picks up again, or consider outsourcing and freelancing for when you need a bit of extra help but without having to hire new staff. If no one takes care of the customers, it will not be long until there are no more clients to care for.
There are two ways to budget your business money and these are through set amounts or as a percentage of turnover. Many businesses will budget their controllable costs by the pound and non-controllable by percentage of revenue. Obviously a good part of the owner’s time is going to be based on bringing revenue into the organisation and how much they have to spend on controllable expenses will be in direct relation to income. With any upturn in sales the owner will probably need the extra help to take care of the business so a percentage of income will go to more wages, thus freeing the owner to focus on generating additional income.
There are many other costs that fall into the payroll account such as worker’s compensation charges, National Insurance tax paid by the employer and paid vacation time or other staff benefits determined by the employer. These need to be calculated into costs when recruiting staff into the business, unless you make extensive use of freelancing companies.
While you may feel that a budget is difficult to compile for a new business, it is essential to establish a healthy and sound financial footing on which success can be built for the future.
About the Author: Roger Davies, is senior web developer for Advanta Productions a web development company located in the Midlands serving businesses in the Nottingham, Derby and Loughborough areas. Roger and his team have created literally hundreds of web sites. If you need your website developing or want to advertise your business on-line contact Advanta on 0845 22 55 805 or visit the web site.