5 Tips on Planning for the Big Expenses in Your Business
Even those of us that have budgeting down to a fine art can still be caught off guard by an unexpected expense. Usually – a one-off expense. These are items that you should technically expect, but they tend to sneak up on many of us. After all, it can be hard to remember expenses that only pop up once a year, or even less.
So how do you work these costs into your budget, and what’s the best way to deal with them? Here are five steps to help you identify and plan for these one-off expenses:
Identify Past Expenses
You need to make sure that you know about all yearly costs. The easiest way to do this is to go back through last year’s budget, if you have one. If not go through your bank statements. They will be items you may have paid a yearly charge for, like insurance or maintenance costs that are needed every year and so on.
Looking through all those bank records will take time, but this is the most accurate way to find your one-off expenses.
Once you’ve written down each of last year’s items, do some digging to see if payments will remain the same or even rise for the coming year. These costs can then be added to your cashflow forecast in the relevant month.
Look at Your Plans for Next Year
Don’t stop at simply looking through last year’s expenses, though. Think about what you are planning for the upcoming year and work backwards.
For example if you are planning a launch in the middle of next year, there will be additional costs that will be associated with this. These costs need to be included.
If you are having difficulty identifying these additional costs – often imagining what you will need to do to organise the launch or activity will trigger off what you will need to purchase or put in place. You don’t need to go into too much detail, a ball park figure will be fine for now.
Take a Look at Timing
Once you have a list of expenses compiled and have put them in the relevant months, look at your sales income and your monthly outgoings. Highlight the months that you have a high cash balance and highlight the months that you are overdrawn.
In the months you are overdrawn – can you push out any of the payments?
Can you look at paying things like yearly insurance in monthly instalments?
Can you look at getting a short-term loan? (Don’t use your credit card!) Don’t panic at this, this is why we are planning – so we can have options.
Review All Spending
Now that you have all your expected sales revenue and your expected expenses (big and small) included, you need to look at them and see that each of your expenses in is line with your goals for the next year.
For example, if you are renting a studio for your workshop or classes and this is not bringing in the desired profit, or you have decided that it is not where you want to grow your business in the future – you need to look at how you are going to exit this area. Do you need to give notice on rental properties and if yes then how much notice? Factor this into your plan and make sure that you do not end up missing deadlines and paying more than you need.
Every single expense in your budget must be associated with something that’s moving you closer to achieving your goals for the future, and if they are not, you need to get rid of them.
Update and Renew
We know the future is unpredictable and changing all the time. The further out your forecast is, the more likely it is to change. This means you need to make sure that your cash forecast is updated with any new information that comes to light and revised on a regular basis (weekly is best) so it stays relevant and useful to you and your business.
Running out of money and not being prepared financially is a very scary thing. But with practise, planning and budgeting your expenses will become very straightforward, and give you a much better idea of the best way to manage your business finances. If you’re new to budgeting and would like some guidance, you know I’d love to help you. You can book at free 30-minute consultation HERE to discuss your cash flow forecast.
If you’d like more help with getting to grips with your numbers and learning how to use your accounts information to make the key decisions in your business, then take a look at my 6-week course, “Fall in Love with Finance”, next intake is January 2020, so don’t miss out, get on the waiting list now.
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