When a small business is in its early stages, most owners are primarily concerned with breaking even on their investment, then turning a profit and eventually increasing the profit margin. It might seem overzealous to even think about setting money aside for future expansion. But the time to budget for growth is always now, because continued growth—in some form—is key to any small business’s success.
A Budget Is a Financial Roadmap
Consider your business’s budget: It is basically a plan for future growth—a guide to help your business stay solvent today, tomorrow, next week, six months from now and two years from now. By regularly tracking your expenses and your revenue, you can evaluate the efficiency of your operations and keep tabs on the business’s overall financial health. Understanding how your business is growing, or failing to grow, helps you be most effective as a manager.
Focus on Building Capital
Growth takes investment, and investment requires capital. To fund future growth independently, use your budget to plan for new initiatives and expansion. Look for ways to save money on your regular business expenditures and set those funds aside so they are readily available when growth opportunities arise.
Use your budget to estimate the increased expenses that will come along with growth. For example, if your business is expanding into a new market, you will predict sales revenue to increase from the new channel; but do not forget to budget for salaries for additional sales staff, marketing costs, and any production or new equipment purchases. These components often add up to a greater amount when they are written down on paper.
Then consider your options for funding new growth. An accountant or tax professional can help you determine how much capital you can reasonably gain from your operations, and they can also help you identify outside sources for funding.
Take Inventory of Financial Facts
Creating and maintaining a comprehensive budget is time-consuming, particularly for small business owners who wear multiple hats, but it is an essential function for financial health and future growth potential. Once a budget system is established, it can reduce the overall time you need to spend on managing capital and tracking your finances. Conduct monthly, semiannual, or annual budget reviews to keep tabs on how each department is performing and adjust as needed to make your goals for growth a priority and a reality.