How to Budget for a Small Business
As the former small business owner of a sign business for over 14 years, one of the biggest things I struggled with was how to budget for a small business. And towards the end of our time as small business owners, not planing wisely ended up in our ultimately closing our small business. Planning your budget for your small business is crucial to your success - or lack of it.
In California, where we owned and operated our small business, the rate for business failure was a staggering 69% in 2011 alone. General statistics for the rest of U.S. small businesses are:
- 57% of all small businesses fail in first year.
- 80% of all small businesses fail within the first 5 years.
- 80% of those that survive the first 5 years, fail or close after the second 5 years.
"Fail to Plan, Plan to Fail"
So with the failure rate for small business being so high, what can you do to budget for your small business? After all, money is the main reason you are in business, correct? Being philanthropic at this moment and saying you are in business to "do good deeds" or "live out your dreams" is really going to kill your small business because the bottom line is that you have to survive, and it takes money and planning to do this, right? You are in business to make money, feed and clothe your family, provide shelter for them and yourself, and to live - bottom line.
The #1 bit of business advice I can give to someone starting a small business is this:
Get a book-keeper IMMEDIATELY. And a good one at that. Hire someone who understands small business, works with small businesses and can help you understand profit and loss, budgeting and financial planning. This will be the most worthwhile thing you can do for yourself and your business. If you do not understand these things you are doomed to failure.
#2: Contact your local SCORE office and make an appointment to see a counselor who will walk you through what it's like to be a small business owner. This service is FREE, and the counselors are people that have been in small business themselves and understand what budgets and operating a small business are all about. They can even guide you into free resources that will help you learn how to prepare a budget for your business. There are also classes that you can take at your local college. Understanding money, cash flow and your budget are essential to your success.
The work we did in our small sign business
Understanding small business cash flow
#3: Sit down and honestly crunch some numbers. Take into account your overhead: what it actually costs you just to keep your business afloat - rent, utilities, employees if you have them, equipment, monthly costs, monthly leases, materials, advertising, health insurance and gas are just a few of the "biggies" when planning your budget. Once you take a look at these numbers alone your jaw may drop when you realize you need to make a profit on top of that!
This is in no way an article to discourage you from starting a small business but rather a primer for what starting a small business is all about. How to budget for a small business is one of the number one things that will determine the survival, failure or closure of your small business. Best of luck and if you have any questions feel free to ask in the comment section below.