Budgeting basics

A small business with the right product, at the right time and with the right customer base still has the potential to fail. Working up a budget not only helps you track your expenses and expenditures, but more importantly provides a tool for tracking everything money related within your overall business. Your budget serves as a tool to help you figure out if you have reached your past and present profit goals, and whether or not you can reach your future goals.

The Importance

A budget will answer the questions you need to determine the answers to important questions that can make your bakery successful. How much money will I spend on ingredients? How many of each product do I need to sell to generate the profits I need to stay in business? What variable expenses such as bills might come up? Given a certain payroll allocation, how many fulltime and part-time employees must I have and at what times of the year will I need to increase staff? These are just a few of the questions that a budget will help you with.

Trying to run a retail bakery without a budget might work for some, but even for those who do it with success, a budget could help them increase their profits, lower their expenses, or both. The best part of the budget is that it enables a bakery to forecast the future. Once the period that was budgeted has past, you can then review it and figure out where you need to make adjustments.

The retail bakery business doesn’t remain static throughout the year, quarter, etc. Owners and managers must remember this when creating and reviewing budgets. A first budget will uncover unforeseen problems and provide useful information when deciding how you want to handle these problems in the future. Overtime working and re-working budgets will provide you with a detailed plan for when and how budgets need to be set up throughout the business year in terms sales spikes and drops as well.

The Basics

Spend some time and think about your budget. Make sure you work at it and avoid a half-hearted attempt that could possibly put you in a bad financial situation. Whether you budget for the next five years, three years, one year or just for the quarter, a few basics exist that will help ask and answer budget questions.

If you haven’t already, make contacts with other retail bakeries, especially in your area and region. Ask questions about budgeting specifically. While every retail operation is different, other successful bakery owners can share insight into unseen budget considerations.

For the retail bakery, budgets need to have some wiggle room. Remember that flexibility in your budget provides safety for months that revenue falls short. Also, some months might bring in more revenue than expected. You should prepare to adjust on the fly when necessary. Always make conservative estimates, have an alternative plan to handle any extra profits wisely and continuously look for ways to cut costs without jeopardizing quality.

Always shop around and get multiple estimates when spending money, especially on big spends. The cheapest isn’t necessarily the best. Look for overall value on purchases and plan ahead for them by beginning to shop in advance.

The internet provides a wealth of free resources when it comes to budgeting. Take advantage of every possible one out there.

Budgeting gives you both the foresight and hindsight needed to make your bakery as profitable as possible. Don’t overlook the advantages of spending some extra time and effort on a budget and remember that budgeting is always a work in progress.

Don’t Forget About Yourself

TD Ameritrade’s Self-Employment and Retirement Survey reports that almost 70% of self-employed people aren’t saving for retirement on a regular basis. Some 40% don’t save regularly, while 28% admit they don’t save at all. By comparison, just 12% of employees say they don’t save regularly and only 10% don’t save at all.

Small business owners face more financial challenges than the traditionally employed, including unpredictable income (cited by 61%), which can make it hard to save for retirement. And they frequently have to spend more to afford health insurance than do employees, which can chip away at money that might otherwise be earmarked for retirement.

Retirement plans today offer more options than ever before. There are even 401(k) plans for one-person businesses and plans that allow you to make irregular contributions when your income allows it.

Five Common Money Mistakes Small Businesses Make

• Not having enough cash reserves - Start with adequate operating cash. Don't fool yourself with wishful thinking that the money will somehow be there.

• Being plastic dependent - Whether through a small business loan, a capital infusion or your own funding, ensuring sufficient operating capital can save you from getting into credit card debt.

• Mixing personal and business finances - It's tempting to cross the line, but keep these two entities completely separate. It makes it easier for accounting, budgeting and reconciling both sets of books, and assists in determining actual profits and losses for the business.

• Shorting yourself on compensation - In the early stages of business, it may seem like a solid decision to redistribute any and all of your profits back into your business. But not compensating yourself along the way could harm your personal finances and financial good standing.

• Not having an organized accounts receivable system – If you’re wholesaling or collecting payments after goods or services have been delivered, print your payment terms on the back of every invoice, and follow a clear process in collecting payments. Make sending prompt reminders part of your business.

SOURCE: www.score.org