How to Budget for Success as a Self Employed

Data shows that about 20% of small businesses fail in their first year and 50% hardly make it past their 5th year primarily due to financial issues. This has been partly attributed to lack of or poor financial planning. Just because a business is bringing in revenue doesn’t necessarily mean it is making profit.

The lack of financial planning is mainly due to the low level of financial education in our schools.

The good news is small businesses can learn to plan their finances the same way they plan their business operations.

I want to share with you 5 steps to take control of your finances using the tool of budgeting.

A budget is a financial management tool which helps business owners plan and forecast where their money is coming from and how it will be spent. A budget can be monthly, quarterly or yearly.

1. To make a budget work for you, you have to start with outlining your financial goals both personal and business. Goals like, buying a new equipment, following a professional training program, traveling for a conference etc. Goals help you spend money appropriately.
2. Analyse your income using the past 6 months as a basis. Use the data to estimate revenue for the coming period.
3. Understand your expenses and analyse them in detail again using data from past 6 months. Having a thorough knowledge of your costs will provide good basis for planning your future spending.
4. Know your business profit. Your profit is what is left after all your business expenses have been deducted from your revenue. This amount reflects how well your business is doing, whether you are making enough sales and keeping your expenses under control. From the estimated profit, deduct your estimated income tax and health insurance contribution. You are now left with net profit which you can apply to business growth.
5. Factor in seasonal business fluctuations into your planning. Some businesses do not do well in the winter season while some others make most sales during winter. To prevent business from shutting down during slow season, you need to plan your expenses effectively.

With these 5 steps, you can now create a realistic budget for your business. On a monthly basis you review your actual income and expense and compare it to your budgeted figures. Make adjustments where necessary. This way you can use your money effectively to achieve your short-term and long-term goals.