Top 5 Small Business Budget Challenges and how to Overcome them
by Arina Smith Small Business 15 November 2018
Businesses can’t survive without properly managing their finances. Small businesses are even more complicated to manage, considering the financial challenges that they have to cope with. Competition is what makes it tougher for small businesses to overcome all the budget issues that may appear. Overspending, unstable revenues and continuously changing economies are obstacles that small business owners must tackle in one way or another. From learning how to allocate resources properly to mastering budget planning, this article will cover all relevant facts about this topic and will help you find the optimal solutions to the budget challenges you encounter in running a small business. Here’s the list:
1. Inefficiencies in the budgeting process:
When budgeting gets too complex and you don’t have enough knowledge in this field, things can go wrong. Whether you work in finances or not, you surely encountered budgeting inefficiencies. Solving these inefficiencies and bringing the budget process back on track is a must to avoid further financial issues. Collecting budget numbers properly and making sure that all financial data is correctly handled represent the first step towards achieving a balanced budget. Using spreadsheet templates or paper and pen could lead to many human errors that will only make the situation worse.
As a small business entrepreneur, you must find the most viable solution for solving these inefficiencies. The recommended solution for a clearer budgeting process would be simplifying it through the use of an EPM platform. EPM (Enterprise Performance Management) platforms are software programs that can help any business owner handle all the financial data better and reducing the risk of error. Eliminating these issues will lead to the disappearance of inefficiencies. EPM platforms are also able to simulate potential reports to help entrepreneurs make wiser decisions related to their budget.
2. Missed targets and deficits:
Deficits and missed targets are the financial challenges that small businesses get scared of, especially in the first years of operating on the market. Seasonal businesses are the ones that deal with missed targets each year and negotiation is key to repair the damage done during downtime. Yet when sales are nonexistent, you still have to keep the business alive. Addressing the cashflow situation can be done by adopting new selling and accounting techniques that will encourage clients to buy from you.
The accounting technique that you should choose for overcoming missed targets is depreciating your assets. Lowering the product’s prices to sell old inventories fast will bring your cash flow back on track. Renegotiating the contracts with your vendors, suppliers and any other creditors you collaborate with should solve the problem shortly. Your asset value will decrease but the method is temporary. Running such a deficit during the year will be compensated through the busy season. Run different expense scenarios if your individual projections were not met, even after applying various methods to address the issue.
3. Seasonal budgeting:
Streamlining your budget when the economy is changing seasonally it’s pretty difficult. Slower financial periods and seasonal upswings are difficult to manage if you don’t know where to start. Since all businesses encounter some downtime at a certain moment in a financial year, it’s important to plan your budget for that period. In order to keep the doors of the business open during rough times, you must find appropriate solutions. From month to month, you have to analyze your financial statements and notice where the problem is. Seasonal changes often refer to the amount of money you pay on utilities, taxes, supplies, advertising, and payroll. Sales will start to climb in the coming months so entrepreneurs must learn how to compensate for the drastic changes that happen each season.
The busy season might be more difficult to manage, as you have to make additional investments. Among these investments are hiring new employees, launching advertising campaigns, upgrading point-of-sale systems and so on. If these investments can’t be afforded, but they are paramount for the proper functioning of your small business, you can try applying for a loan online. It’s the easiest, most effective method to cope with the busy season and you’ll have plenty of time to deal with your business credit payments.
4. Chaotic cashflow:
If you don’t find yourself in any of the situation mentioned above, you might simply deal with a chaotic cashflow during the entire financial year. In the eventuality that this is the issue that your business has, you can easily tackle the problem. Learn more about the essential components of business budgets, so that you understand what are the processes that take place after you make a move. A chaotic cashflow can be organized quickly by adopting a few measurements.
- Consolidating BOTH costs and expenses
Clinching the sales is all about consolidating costs and expenses. For this, you must learn more about the division between fixed, variable and one-time expenses, while properly assessing the costs that your small business involves monthly.
- Revenue projection
Secondly, you must project your sales for the financial year. Even though the projections might not be extremely accurate, this step will give you the possibility to benchmark your business revenue.
- Understanding KPIs, setting them and tracking progress
Finally, you must understand and work with Key Performance Indicators. Small businesses should focus on target sales (to avoid the situation mentioned above), the potential operation expenses that can be dealt with through generated financial statements and the historical profit margins of the business. The more realistic the figures, the more accurate the cashflow.
5. Reviewing revenue sources:
The last budgeting challenge that you might meet in your business path is related to revenue sources. Many entrepreneurs get confused when they manage their revenue sources because they don’t separate them in an efficient manner. By categorizing the revenue sources and tracking them during the whole financial year, everything will work as initially projected. The revenue sources include the sales volume, daily, monthly and quarterly earnings, investment outcomes and anything that has to do with exact numbers. More revenue sources allow you to notice financial problems earlier and solve them in the shortest time.