Business Budgeting

Well, it’s now *officially* spring. Of course, that means the end of those cold winter months and the start of warmer, longer days, but it also means the possibility of disruption and stormy weather (especially in the south this week). And while we sure do love those flowers, we haven’t had much time to stop and smell ‘em. Especially now that we’re less than a month away from the April 18th deadline (yes, you read that right – it’s the 18th this year, because of a DC Holiday, Emancipation Day, on the 15th).  But, we are still aiming for the 15th as the deadline, so it’s important to get your documentation to us right away. Time to get that appointment booked before those flowers start wilting: Patti (408) 241-4100  Gale (408)775-7800 On a perhaps better note, the SBA announced the additional deferment of principal and interest payments for existing COVID Economic Injury Disaster Loan (EIDL) program borrowers for a total of 30 months deferment from inception on all approved COVID EIDL loans.  That spells relief (and flexibility) for small business owners affected by the pandemic and the recent supply chain and inflation difficulties during a growing economic recovery. However note well: the interest is still racking up (albeit at a very reasonable rate). But this may mean some flexibility for your San Francisco Bay Area business’s budget (do you even have one?) … which is what I’m talking about today. I want to take a look at some best practices around it all and how to implement them in your SMB. Let’s roll Business Budget Basics San Francisco Bay Area Owners Should Follow “It’s clearly a budget. It’s got a lot of numbers in it.” – George W. Bush Lacking a budget in your personal life is like driving without a map. In business, lacking a budget is worse than that – it’s more like trying to drive at night with no map and no headlights. So, in the interest of helping you avoid a dangerous road in your business, let’s continue our series on personal versus business money management by focusing on budgets. How does making a business budget differ from a personal one and what do you need to consider when making one? Alike but differentWhether for your household or for your company, there are certain things that have to go into any kind of budget. You know the things that give the basic details of money coming in and going out. So you want to make sure the numbers will not only keep the lights on but keep everything running. Pretty simple. You also assemble both kinds of budgets with similar optimism: That stock for your personal portfolio is going to do well or that new piece of equipment for the business is going to produce a big ROI. And of course, you hope you’re right … Still, it’s important to keep the two kinds of budgets separate and distinct for various reasons – not the least of which are your biz banking, your taxes, and your legal liability should money troubles arise. Let’s get to work. Talking businessKeep some key points in mind as you build your business budget: This is just an overview that scratches the surface – we’d be happy to go over your numbers and talk about each of these more. Projections: Forecasting is generally more important in a business budget than in a personal one. This is where you lay out your expectations for your operation, such as future sales and P&L. If you’ve been in business for a while, build off the last few years’ numbers. If you’re just starting out, use industry averages. It’s also good to break these numbers out by slices of time, like by quarter or by the half-year, as well as annually. Costs: These items are going to vary a lot more than on a personal budget, but some are similarly stable: rent, for example. Some of your other fixed business expenses might include accounting and legal services, equipment leases, and insurance. Your variable business costs can change frequently. Production and supply costs come first to mind these days when you think of dollar figures that are getting harder to predict. We’re all in a tough boat with that one (in fact, boats are where a lot of our supplies are, waiting to make port …) Costs of maintaining a staff can be fixed or variable, considering raises, layoffs, and teams you may need temporarily for special projects. Other expenses in your budget might be one-timers, like moving offices, but your budget has to account for those too. Income: Everybody’s favorite part of the budget is the part that tells you the cash you’re bringing in the door no matter the source. You use this figure to see your profit at a glance – and watch this like a hawk. Additional details might include the price of your products and services. “Income” can also include money you borrowed to finance short-term projects, but you do have to shift this debt fast to the “costs” side when it’s time to start repaying a loan. Another category here is “cash on hand.” Like the name says, it’s your liquid reserve to keep you going in lean times. Got a customer incentive program? You can also add details here in your budget about how you increase cash on hand. Now put it to useYou’re not going to do budgets for long before you see trends in your business. Bottom line hurting? Look how the light bill went up but you never increased the cost of your service. Look at how those sales spike and dip in the same months every year. These trends can come into focus when the numbers are right in front of you. Questions become clearer, too. Do you need to raise prices, or can you lower them? What products or services should you push harder or cut completely? What ROI do you need to hire three new people? Why so much on staplers? The push-pull of running a business keeps