Your sales will rarely be constant over the course of a year. Seasonality around the time of holidays, vacation days, or winter breaks, means there will be peaks and troughs in your income – and that can leave a big hole in your cash flow!
To cope effectively with these seasonal dips, it’s vital that you look closely at your finances and budget for both the highs and lows. With the right amount of planning and forward thinking, you can help your business ride out the stormy weather and come out the other side sailing at full speed.
Working with North Carolina businesses (and those in other states, too!), we’re often encouraging our clients to budget well.
To help you navigate the choppy waters, here are some of our tips for smart budgeting.
- Always overestimate your expenses
While running the business, you’ll work up a certain amount of everyday expenses that need to be factored into your budgets. It’s always a good idea to overestimate these costs and give yourself plenty of ‘wriggle room’ if expenses do start to build up.
If you go over your estimated figure, you’ll have room to play with. But if you’ve kept your estimated expenses figure too low, you can easily find yourself in the red.
When you use Xero, this is made much simpler because you can review reports and expenses at the click of a button – anytime, anywhere.
- Know your industry’s cycles
Every industry will have its particular peaks in activity and off-season times – and it’s important that you factor these into your budgeting.
Sometimes sales will soar, and sometimes they will plummet. Knowing these seasonal periods in the year, and planning for them, means you’re prepared and ready when cash becomes leaner.
During peak times, when sales are blossoming, put money aside and create a pot of cash to see you through the hard times. Having the right funds set aside is all part of good budgeting and will help you keep your cash flow looking positive all year round.
Do you know what your seasonality is? If you’re not sure, arrange an Awesome 8 planning session.
- Prepare a risk analysis for the entire year
At the start of the year, sit down and think about the potential risks your business may experience – and consider how you’d deal with them.
Knowing what may lie ahead is half the battle when dealing with risk. And preparation is the best form of prevention. Look back over past years and look for the trends. When did you lose most customers? When did you make most sales? When was your poorest month for cash flow?
With a detailed risk analysis, you can factor all of these elements into your budgets and business planning for the year. And, again, always be conservative and plan for the least favourable trends.
- Factor in time and delays
If you’re in a project-based industry – maybe you’re an architect, or a web designer – remember to factor in time and the impact it will have on your budgets.
A common mistake is neglecting to factor in project delays. What happens if a job is held up by circumstances outside your control? And what will the impact be on your costs and budgets?
Make sure you understand the time scales required to get each job done. Set clear deadlines and put regular targets in place to ensure you keep to the right timelines. If you miss deadlines, you’re likely to also lose money – and remember, time is money! And if you do find yourself missing deadlines, look at your working practices and team utilization to help make the business more effective and time-conscious.
- Plan for large purchases early and with precision
Over time, there will be large purchases you need to make to keep the business running, or to take you to the next step in your growth.
Small, day-to-day purchases won’t have a big impact on your cash situation – and expenses will hopefully be factored into your budgeting (see point 1). But expensive, unplanned purchases (think computers, plant and equipment, or new hires) have the potential to hit your bank balance hard.
As with all budgeting, it’s best to overestimate these costs and give yourself some room for flexibility…which leads us nicely to tip 6!
- Lastly, remember that budgets need to be flexible as well
Your budget is not a static document. Over time, you’ll need to review, revise and update your budgeting to meet the changing requirements of the business and the evolving nature of your industry’s market. We’re regularly reviewing budgets with our clients – sometimes in a formal monthly meeting, and other times as needed, more often than that!
Building flexibility into your budgets makes it easier to flex and change direction. And putting time in the diary each month to review your budgets (and how well you’re sticking to them) will help you maintain that flexibility in your planning.
Talk to us about your budgeting
At Holden Moss, we love working with ambitious business owners who have great plans for growth. And getting your budgeting on point is a vital part of that growth process.
Our experience as business advisers gives your budgeting the edge. We sit down with you to understand your company, your industry and the seasonal trends that affect your profitability. And then we work with you to build an annual budget, and an associated business plan.
With a considered, rounded budget, we’ll give you the best possible chance of achieving your core strategic goals.
Get in touch with your local office to arrange a chat about improving your budgeting.