According to Statistics Canada, small businesses account for nearly 98% percent of Canadian employers. The backbone of our nation’s commerce is based on the success of these entities, which makes wise money management crucial for small business owners like yourself.
The first step toward being financially savvy is adhering to a monthly budget. Use these tips to make the budgeting process easy and streamlined so you can focus on growing your business and turning a profit.
Maintain Your Emergency Fund
Monthly habit 1: Put away X amount of money.
In the early stages of establishing a new business, revenue fluctuates, so you need a back-up plan to offset this lack of consistency. This is where starting an emergency fund becomes useful. You can’t control unforeseen expenses or economic downturns, but you can create a financial buffer in the event that something affects your business and the money you’re making.
Work toward saving "between three months’ and a year’s worth of expenses for a business emergency fund. The money can be used not just to supplement a volatile income stream, but it can also be used to allow a company to target opportunities," suggests certified financial planner Michael Dubins. To do so, put away a set amount of money each month; if possible, automate the process so you don’t even notice it’s been put away.
Account for All Hidden Costs
Monthly habit 2: Include potential hidden costs in the budget.
Planning ahead for unforeseen costs is like creating a reverse buffer for yourself. If something comes up, you’ve already planned for and prepared for it. “Small businesses are built on innovative new ideas, but success also depends on the ability to predict the unexpected. When starting a new business, you can avoid these surprises down the line by designating 20 percent of your budget to hidden costs,” says Prabhath Sirisena, co-founder of Hiveage, invoice software.
Use the Envelope Method
Monthly habit 3: Give yourself a budget and don’t spend over and above that.
The envelope method is a great way to hold yourself accountable if you tend to overspend. The idea stems from the idea of taking out your allotted monthly spending in cash, putting it in an envelope, and when that cash is gone, your spending is done for the time period you’ve allotted. For small business owners, this can be a good way of keeping finances in check.
Your finances, however, are more complicated than the average budgeter’s, so consider how you can use this method to manage payments and money in various areas of your business. For example, you may allot yourself the following:
- $500 for office food and snacks
- $300 for office supplies
- $600 for client dinners
Use this to plan your monthly budget and then stick to it as a guide to stay within the parameters of what you can and can’t spend. If you find you’re still going over each month, use this simple budgeting calculator to determine how much is coming in, how much is going out, and what that amounts to in total amount overspent.
Place your focus on reducing that number each month until you’re no longer spending more than you’re bringing in. Then come back to the envelope method, which will help you maintain and improve those spending habits.
Keep Track of All Expenses
Monthly habit 4: Update records with all monthly financial transactions.
A perk of owning your own business is that you can write-off certain expenses when filing taxes. In order to actually benefit from this incentive, however, you need to have documented proof of those expenses.
Make this a part of your monthly to-dos when budgeting. Get into the practice of recording all transactions that occurred during the previous month. Track this data in your accounting software and save receipts digitally, so in the event that you’re audited, or there are issues, you’ll have everything on file.
The latest version of Kashoo allows you to do exactly that with an easy-to-use, cloud-based interface for both desktop and mobile. Not to mention, Kashoo is a small business-minded company that specializes in equipping startup owners with the resources they need to thrive.
Proactively Reduce Debt
Monthly habit 5: Pay more than the minimum each month, if possible.
Debt is a reality for many small business owners, and having too much of it can weigh you down: “Unnecessary debt is a drain on your business. And more importantly, once you have business debt, it’s important to make consistent payments, and proactively reduce the principal amount,” says Matthew Baker, Entrepreneur contributor.
When your budget is done each month, consider how much extra you can put toward your loans. Some months it may only be $50 but others you may have a $300 surplus. Most financial professionals will also suggest focusing on debts with the highest interest rate, which will cost you more in the long run.
Create Good Money Habits and Stick to Them
Following a monthly budget is the easiest and most efficient way to fund your entrepreneurial ambitions. Use these tips and Kashoo to control how much you spend, keep track of expenses, and protect yourself against unforeseen financial setbacks. With these monthly habits, you’ll soon become a financially savvy business owner, which is more than half the battle when running a successful business. You can try Kashoo for free today, to help you manage your income and expenses and stay on track each month.