As we begin to settle into the new year and tax season, you may be thinking about reviewing your business finances to identify any savings that could be made. If you’re a small business, then business finance could be new to you. In fact, Clutch has found that 61% of small businesses have not created a formal budget. For larger businesses, your business finance will be significantly bigger and, due to this, it can be difficult to find ways to make savings.
At Virtual Cabinet, we believe that businesses should have all the tools and information available to create an efficient and productive workflow, with employees that enjoy their work and feel fulfilled. That’s why we’ve put together this blog that will help you create a spending plan for the new year, with tips on how to make savings on supplies, software and more.
Whether you’re unsure what budgeting is, or just need a gentle refresher, it’s always good to keep updated with the latest business finance news. A budget is a detailed spending plan that outlines your predicted revenue and income, documents exactly what you’ll be spending your money on, and evaluates the available capital. It’s great to factor in long-term financial goals and these should be implemented in the spending plan.
There are various types of budgets and spending plans.
There are several reasons why spending plans are important. Firstly, and most importantly, they stop you from spending money in the wrong place. With a detailed spending plan, you’ll be able to review what you’ve spent and if these decisions have benefitted the business. If they haven’t and you’ve made a loss, then you’ll be able to recognise this and cut this from the budget for next year. It also allows you to determine what is essential and what is optional. Without a budget, your business may invest heavily in something that could cause problems further down the line, such as not retaining enough revenue to keep afloat.
Spending plans also allow your business to apply for funding. If you’re a small business who is struggling for cash, then a detailed business and spending plan will help you apply for loans and grants from banks, investors, or the government. Them understanding what exactly their investments are going towards will work in your favour, as they will be able to work out a risk vs. reward evaluation and make an informed decision.
With a detailed spending plan and budget, you’ll be able to set goals for your business. A great business budget and spending plan will help you prioritise which goals you can achieve in what order, based on realistic metrics. Spending plans can help identify problem areas in the business too, highlighting the most draining costs or expenses.
Budgeting a business is no easy task. Short and long-term financial goals, employee wages and unexpected events can be difficult to factor into business finance – especially when you’re also trying to run your company to the best of your ability. But fear not, Virtual Cabinet is here to help. We’ve put together some top tips on budgeting a business.
1. Estimate monthly fixed and variable costs
First, divide costs into variable and fixed. The fixed costs are pretty easy to identify as these are the ones that are consistent and recurring expenses that are paid every month, and are necessary to keep the business running. These include things like rent, insurance, and utility bills, as well as equipment hire or software. Understanding your fixed costs will tell you the bare minimum that your company needs to survive. Then you can research these expenses and make sure you’re getting the best deal on each cost.
Are you using various pieces of software for your business? Instead, consider using one document management platform that will save you money in the long term. Save costs by going digital and using document management software to reduce admin and physical storage space, as well as costs on printing, posting, and filing. Increase profitability and productivity by increasing the amount of time your employees have on important tasks, rather than spending hours chasing documents or trying to collaborate with others.
Variable costs are those that change according to production or sales volume, such as raw materials, production costs, packing and shipping. These can be hard to estimate but over time you’ll be able to gather a range of costs that you can factor into your spending plan. For an up-to-date estimate, keep researching the industry and the news to ensure that you’re one step ahead for when these variable costs skyrocket or plummet, so you can plan accordingly.
2. Work out profit and track loss
The best indication of how well your business is doing is by working out your net profit margin. This is the money you’re left with after deducting expenses and costs from your revenue. If your profit is growing year on year or even month on month, then this is a good indicator that your business is doing well. Once you have tracked your profit, you need to consider how you’re going to use the extra money – will you invest it in advertising or marketing to drive more sales, or invest in new software?
If you’ve noticed losses on your profit and loss statement, then you will need to take the time to consider how to improve this. You could consider increasing the cost of your goods or services sold or cut back on variable expenses.
Using a document management system will streamline your business and speed up your workflow, as well as help you save money long term. Rather than paying for multiple document platforms, combining everything you love into one place will not only make it more convenient to collaborate, communicate and share with clients, but also reduce fixed expenses. If your software is causing your business to make a loss, then why not book a free demo and speak to one of our business finance experts who will answer all your questions about spending plans and document management. We will help you collaborate with clients and employees, securely store documents, and integrate other plugins, such as Microsoft Office, for a more productive and happier working environment.
3. Set up an emergency fund
Probably the most important step to setting up your spending plan is creating an emergency fund. The past couple of years have proven how uncertain life and business can be, therefore it’s imperative that you safeguard your company’s future. An emergency spending plan is there to support you in times of need, whether it’s a late invoice, or a worldwide pandemic, it’s best practice to have an emergency fund that can cover three to six months of expenses. This is where long-term finance thinking is imperative, as businesses that fail to protect their future will put themselves in jeopardy at the first sign of trouble.
At Virtual Cabinet, our mission is to make your business happier and more productive. With our guide to spending plans and business finance, we’ve provided you with some tips on how to set long term financial goals. If saving money on your office tech stack is something you’d like to know more about for your business, why not book a free demo of our document management system and see how VC can save you money and stress?
Speak to one of our experts about your spending plan and we can share how our software can be used to meet your needs. From integrating beloved plugins, such as Microsoft Office, to digitising your contracts, to reducing spend on printing and improving your carbon footprint, we have everything you need for a more efficient working environment.