A Guide to Budgeting for Small Business

ByDanica Djokic
August 26,2022

As a small business owner, you know that every penny counts. That’s why effective budgeting is essential to the success of your business. A well-crafted budget can help you control expenses, allocate resources effectively, and make informed financial decisions. 

But what exactly is a spending plan? And how do you create a budget for your startup? Stay with us and learn the ropes of efficient budgeting for small business needs.

What Is Budgeting?

Budgeting is the process of planning and allocating resources to achieve financial objectives. In other words, it’s a road map for your business finances and a comprehensive process of creating a plan for how to spend your money. This includes setting financial goals, estimating expenses, and tracking actual spending. 

A budget gives you a clear overview of your finances so you can make informed decisions about how to best use your resources.

The Benefits of Budgeting for Small Business Operations

Even though it doesn’t seem like something that would have an immediate impact, budgeting can be beneficial for your small business in several ways.

  • It can help you control expenses and save money. When you know where every penny is going, it’s easier to find areas where you can cut back. This can free up resources to be used elsewhere, such as investing in company growth.
  • With budget planning, you can improve your decision-making. A budget forces you to think carefully about every purchase and consider whether it’s really necessary. This can help you avoid impulsive decisions that might harm your business in the long run.
  • Once you start budgeting for your small business startup, you can better allocate resources, save for a rainy day, or invest in emergency funds or retirement accounts. Avoiding debt and building up reserves can help you weather tough times and take advantage of opportunities when they arise.

How To Make a Budget Plan

Whether you use a top-notch app, a good old notebook, or sophisticated business budgeting software, the process of creating a budget for your small business is more or less the same. Here are the steps you need to take:

1. Know Your Numbers

The first step in any budgeting process is to get an accurate picture of your current finances. Budgeting for starting a small business means knowing how much money you have coming in and going out each month. Look at your bank statements, invoices, and receipts to better understand your typical expenses.

Then, list your sales records, inventory, and other sources of revenue to get an idea of your income. If you don’t have good records, you should start tracking your spending.

Don’t forget to factor in fixed costs like rent and salaries and variable ones like materials and shipping. A good budget should include one-time expenses like equipment purchases or repairs and make room for unexpected costs that can pop up from time to time.

With all the figures in place, you can tally up your total monthly income and expenses. This will give you a good starting point for planning and budgeting for your small business.

2. Project the Cash Flow Accurately

Your budget needs to project your company’s cash flow for the coming months. This means estimating your income and expenses for each month and ensuring that your projected income is higher than your projected expenses. If not, you must find ways to increase revenue or reduce spending.

Customer and vendor payments are often irregular, so you need to account for this when estimating your monthly cash flow. While on it, you can also think of a strategy to encourage customers to pay sooner rather than later. 

You can do it by offering a discount for early payment or using simple tools for budgeting for a small business, such as reliable invoice financing software. The latter will not only help you get paid immediately but also help you track your expenses and manage customer information.

3. Consider Cost Cutting

If your projected expenses are higher than your income, you need to find ways to reduce your spending. One way to do this is to consider cost-cutting methods. There are several ways you can save money without sacrificing quality or service:

  • Negotiate with vendors: You may be able to get a better deal on supplies or services by negotiating with your vendors. This is especially true if you’re a loyal customer and have leverage due to the volume of business you do with them.
  • Reduce inventory: Do you have too much inventory on hand? One of the best budgeting tips for small business owners is to reduce inventory levels and free up cash that can be used elsewhere in your business.
  • Cut overhead costs: Take a close look at your overhead costs, such as rent, utilities, and insurance. Are there any areas where you can cut costs?
  • Reduce staff costs: One of the biggest expenses for small businesses is employee salaries and benefits. If you’re facing a cash flow crunch, you may need to reduce staff costs by reducing working hours, salaries, or headcount.

4. Create Your Budget

Now that you have all the figures you need, it’s time to pull them together and create your budget. Begin by making a list of all your income and expense items for the month on a simple spreadsheet or with the help of budgeting software for small business needs.

Then, add up all your income and all your expenses. If your income is higher than your expenses, you’re in good shape. Otherwise, you’ll need to think about reducing costs and finding ways to increase your income.

Now is the time to set your financial goals and see how your budget can help you achieve them. Do you want to save money for a down payment on real estate? Are you trying to pay off debt? Are you hoping to boost your profits?

Once you have your goals in mind, you’ll start seeing the benefits of budgeting for your small business. Maybe you’ll realize that you need to rethink your investment strategy or make drastic cuts. Whatever changes you make, be sure to track your progress and fine-tune your budget as necessary to ensure you’re on track to achieve your goals.

Final Words

Budgeting is an integral part of running a small business. By keeping an eye on your cash flow, you can ensure that your business is on solid financial footing. Cost-cutting methods can help you free up cash that can be used to improve your business in other ways. And by setting goals and tracking your progress, you can ensure that you’re on track to reach your financial goals.

How do you budget for a small business?

Our accounting and budgeting for small business guide can help you get started. We recommend tracking your income and expenses for several months to better understand money flows. Next, consider cost-cutting methods to reduce spending and reach your financial goals. Finally, create a budget using a spreadsheet or a dedicated app/budgeting software.

Why is budgeting important for a small business?

Budgeting helps you track your income and expenses, find ways to reduce your spending, and reach your financial goals.

What is the 50-20-30 budget rule?

The 50-20-30 strategy when budgeting for a small business is a guideline that suggests that you should spend 50% of your income on essentials, 20% on savings and debt repayment, and 30% on discretionary expenses.

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Once you've created your budget, stick to it as closely as possible to improve your chances of success. And if you need help staying on track, consider working with a financial advisor who can help you make the most of your money.
By Julija A. · August 22,2022
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By Danica Djokic · August 08,2022
Today, eCommerce is revolutionizing the way we shop. No longer do we have to trek to the mall or stand in line at the store. We can simply sit at our computers or use our smartphones to purchase whatever we want with just a few clicks. The ease and convenience of online shopping have made it one of the most popular shopping methods, and businesses have taken notice. The top eCommerce companies are now worth billions of dollars, and they’re only getting bigger. To save you the trouble of scouring the internet for the best online shopping venues, we’ve compiled a list of the top six. 1. Amazon - The King of Market Dominance Market cap: $1.168 trillion Revenue: $469.8 billion Monthly visits: 2.4 billion No list of eCommerce retailers would be complete without Amazon. This online store is the undisputed king of eCommerce, with a staggering market cap of $1.168 trillion, a dominance of the market with 44% of all eCommerce sales, and over 12 million products on its shelves. 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For an annual fee of $139 or a $14.99 monthly subscription, members get free shipping, access to Prime Video and Prime Music streaming services, extra discounts, and coupons, thus generating additional revenue for the company. Speaking of which, the company reported $469.8 billion in revenue in 2021. Despite being one of the top eCommerce companies in the world, Amazon didn’t make it through the COVID-19 pandemic unscathed. Even though the outbreak led to a surge in online shopping as people avoided going to physical stores, the retailer had to deal with a significant strain on its resources, leading to delays in shipping times and limited stock. 2. eBay - The Pioneer of Online Shopping Market cap: $25.56 billion Revenue: $10.42 billion Monthly visits: 753.5 million eBay is one of the oldest and best-rated eCommerce platforms. The online marketplace was founded back in 1995 and was one of the first to capitalize on the power of the internet for the purposes of shopping. 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The company has also been very innovative, introducing features such as Tmall, which provides a platform for businesses to sell to consumers, and AliExpress, which lets small businesses sell to buyers outside of China. In recent years, Alibaba has been expanding aggressively outside of China. The company has made a number of high-profile acquisitions, such as the purchase of the South China Morning Post in 2015. Alibaba has also invested heavily in overseas eCommerce companies, such as Lazada in Southeast Asia, further cementing itself as one of the top 5 eCommerce companies worldwide. In 2021, the company reported $129.44 billion in revenue, representing a considerable increase compared to the previous year’s $94.46 billion. We expect the upward trend to continue as Alibaba continues to capitalize on the growing global middle class and new international ventures. 4. Rakuten - The Amazon of Japan Market cap: $7.36 billion Revenue: $15 billion Monthly visits: 542.7 million Founded in 1997, Rakuten is a Japanese eCommerce company that is often referred to as the “Amazon of Japan.” The firm operates over 70 services, including an online marketplace, Japan’s largest online bank, the Viber messaging app, an e-book store, and Rakuten Mobile, a mobile carrier.  Today, Rakuten is the largest eCommerce company in Japan and one of the top 10 eCommerce companies in the world, with a market cap of $7.36 billion. The company’s website got a total of 542.7 million visits in April 2022, many of which were searching for Rakuten Travel services, which is Japan's largest online hotel reservation website. The ground-breaking acquisition of Viber in 2014 for $900 million was a strong statement of Rakuten’s ambitions to become a global player in the tech industry. The messaging app has since been integrated into Rakuten’s ecosystem and is used by over one billion people worldwide. Rakuten’s online marketplace is the company’s largest business and accounts for the lion’s share of its revenue. Being one of the best eCommerce brands, it sells everything from books and clothes to electronics and furniture. Rakuten is also known for its cashback program, which gives shoppers a percentage of their purchase back in the form of Rakuten Points. In 2021, Rakuten’s annual revenue amounted to $15 billion, having increased over the previous decade. With that in mind, and given that the name “Rakuten” means “optimism” in Japanese, we expect this upward trend to continue. 5. Walmart - The eCommerce Pioneer Market cap: $361.80 billion Revenue: $571.96 billion Monthly visits: 407.8 million Walmart is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. Headquartered in Bentonville, Arkansas, the company was founded in 1962 and currently has around 10,500 locations in 24 countries. Being one of the top eCommerce companies in the USA, the total number of visits to its website was 407.8 million, according to the May 2022 data. Walmart’s online sales in the US amounted to around 47.8 billion dollars, which is an increase of about 11% compared to the previous year’s figures. Moreover, the company has a market cap of $361.80 billion and has been ranked 1st on the Fortune 500 list for 10 consecutive years.  The continued, steady growth encouraged the company to invest in its eCommerce resources by focusing on expanding and improving its delivery services and grocery pickup. This, combined with Walmart’s wide range of available products and its competitive prices, makes it one of the dominant entries on the eCommerce companies list.  Overall, Walmart offers a great customer experience, provides convenient delivery options, and has an impressive supply chain of 210 distribution centers and a fleet of almost 90,000 vehicles that deliver products to stores and customers. 6. The Home Depot - Everyone’s Favorite Home Improvement Store Market cap: $306.45 billion Revenue: $147.69 billion Monthly visits: 203.6 million Founded in 1978, The Home Depot is the world’s largest home improvement retailer, with more than 2,000 stores in the United States, Canada, and Mexico. The company offers a wide range of products, including tools, building materials, furniture, lawn and garden products, and appliances. When it comes to eCommerce services, Home Depot is currently one of the top eCommerce furniture companies, along with IKEA, with a website that received around 203.6 million visits in June 2022. In recent years, Home Depot has put a lot of focus on its eCommerce business, investing in initiatives such as same-day delivery and in-store pick-up. One of the newest additions to its online services, the “Rent Online, Pick-up In Store” feature, has become quite popular among customers.  ROPIS allows customers to reserve items online and then pick them up at their nearest store. This service is highly convenient for customers who don’t have time to wait for delivery or wait in queues, as well as those who live in rural areas. Combined with its mixed cart selling scheme, whereby customers can purchase both physical and digital items in one transaction, Home Depot’s online presence among other top eCommerce retailers is becoming quite strong. Final Thoughts Many factors have been contributing to the growing popularity of eCommerce in the world. The COVID-19 pandemic has played a significant role in this, as people started turning to online shopping out of necessity. In addition, the availability and popularity of contactless payment options, such as Apple Pay and Amazon Pay, have made it easier and more convenient for people to shop online. In times of drastic changes in the business world, it is hard to imagine the eCommerce industry without the six online sales companies we listed above, as they have all played a significant role in shaping the eCommerce landscape as we know it today.
By Danica Djokic · March 07,2023

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