Even if your business is not what is typically identified as a “seasonal” business, it likely follows a cycle that ebbs and flows with seasonal fluctuations. If you’re a café or restaurant owner, you may have found that the New Year and summer heat has brought you more customers and sales. Alternatively, for some businesses, this period has been much quieter. Fortunately, after a couple of years at the forefront of your business, you’ll likely be able to anticipate those fluctuations. With this knowledge, you can plan and budget accordingly.
5 Things You Can Do to Make Budgeting Easier
As we ease into the New Year, here are five things to consider as you plan for the year ahead:
1. Don’t put it off – create a plan. Look at the upcoming months, keeping in mind the business peaks and troughs. Create a strategy and a plan for how you will prepare for the times when revenues are strong, and when they are slow.
2. Stick to the plan. This isn’t to say you need to rigidly stick to the plan no matter what. Nonetheless, following your plan will ensure you stay on track to success. In saying this, keep in mind that if certain situations change, your plan may need to be adapted appropriately. However, also consider the potential ramifications of deviating from your set plan.
3. Establish benchmarks and goals. Poor cash flow management is one of the biggest causes of small business failure. Therefore, prioritise establishing practices and strategies to properly manage your cash flow.
4. Stay on top of your customers. If you invoice your customers and offer them 30 days to pay, there’s potential for slow-paying customers to eat up all of the profit you may have made. This makes your business less profitable and increases the risk as times slow. You could offer your customers an additional discount if they pay today. Or, you could ensure you have a credit card on file to charge them at the end of each month. This way, you can stay on top of your expected income, and avoid inevitable cash flow problems associated with slow-paying customers. The quicker you have access to awaited cash flow, the easier it is to manage.
5. Start saving. Setting aside a little cash for a rainy day doesn’t just apply to your household budget. Unexpected business costs creep up often, and these can be addressed with some money in the bank. A good goal to shoot for is three to six months of operating capital – but anything is better than nothing. Setting aside that money can cushion your cash flow should unexpected costs arise. You could additionally use a small business loan to improve your cash flow during slower periods.
Anticipate the Business Cycle
“Anticipate the business cycle” probably sounds like an oversimplification. However, it’s important to know that there’s a strong potential for the peak season to slow. As a result, you may need to tighten your belt once the peak is over. Preparing for those periods of lagging income (even if it is only a little), is an important part of running a successful small business.
It likely won’t take long for you to recognise the importance of planning ahead, and setting aside some profits today in order to pay for expenses during the slower periods. While it’s important to plan for the slow, it’s just as important to capitalise on the busy season. Keep in mind this might mean more work, longer hours and a lot more to do. At the time it might feel like an added challenge, however, putting in the hard yards will help you capitalise on business opportunities when they are rife. This could ultimately save your business when revenue begins to slow.
During peak periods, it’s often easy to rationalise spending a little extra. Nonetheless, its important to budget for your off-season expenses, especially if you plan on investing in your business when revenues are high. Again, while this does take discipline and patience, you’ll likely appreciate your budgeting when the season is over.
It’s worthy to remember that budgeting includes more than just your capital resources. Many businesses reduce their business hours during the quieter periods – some even close their doors altogether. Another consideration is to reduce staff during the slower seasons. If you take this approach, it’s important to ensure that this is addressed when new employees are hired. Make sure they understand when you regularly scale back staff and the potential impact it could have on them.
An additional way to minimise business expenses is to negotiate with your suppliers. Adopting a Just-In-Time approach to managing inventory can be a good place to start. If your suppliers maintain a sufficient inventory for you to access during peak times, you won’t have to carry the expense of maintaining that inventory once the peak period slows. While this will likely require a more strategic approach to managing inventory, it could help you better budget throughout the year.
As the new year gets on its way, now is a great time to project a budget for your small business for 2018.
