Business Planning

5 Tips for Small Business Financial Planning and Budgeting

Read Time: 6 min

Small business financial planning and creating effective budgeting strategies are no easy tasks. Small margins or inconsistent and seasonal work makes typical financial planning strategies hard to apply. But, regardless of your organization’s business structure, building and sticking to an annual budget for your company has always been a crucial step for ensuring its longevity.

Under normal circumstances, small business financial planning for the year takes time and strategies to put together. It’s never quite as easy as it seems. But, if you’re a new business or have had an unprecedented year, your annual small business budget planning may feel more daunting than ever before. You’re probably thinking:

  1. What does financial planning for new small business owners look like?
  2. How do I prepare for my business budget planning meeting with certainty?
  3. Is small business planning still worth my time?

Luckily, these 5 tips will help you get the ball rolling for creating a steel-clad small business financial planning outline. This should help set a guide to get you through the next quarter, the next year, or even the next decade.

Financial Planning Tip #1: Refresh Upon Changes Within Your Industry

The start of the year is usually when new laws, rules, and regulations that were passed in the year prior get rolled out.  Are there any that may impact your business?

business owner planning out a business budget

This is one of the easier and less ambiguous things you can do to give an outline for annual small business planning. Because these things often change slowly, you will have plenty of time to implement the new standards into your business.

From minimum wage changes and tax rate adjustments to health insurance mandates or new building regulations, it is likely that a new law (or change to a regulation) may have impacted something that you need to take into account.

Within the last few years, we have seen a huge shift in how customers are paying and the regulations surrounding those transactions. From an influx of digital payments to new fraud measures, there have been a lot of new business trends to welcome. Not all of these things are mandatory changes, but may soon become the industry standard that allows customers to expect nothing less. It would be in your best interest to keep two lists of industry updates: one for required changes and another for recommended improvements. Then filter by what is most important to you and assign reasonable, hardline dates to when you want things done.

These changes may positively or negatively impact your business budget planning, so take the time to understand and plan for them early. Tools like the Department of Labor government website can help you with finding the answers you need during this part of the process.

Financial Planning Tip #2: Anticipate Upcoming Internal Expenses

Large expenses can catch businesses off guard and throw off even the most thoughtfully put together small business budget. Take a look around and see if you can predict any you may incur over the next year.

  • Is your software suite in need of upgrading or point-of-sale terminals that should be replaced?
  • How about implementing that new initiative that you heard so much about such as cash discount or surcharging?
  • Do you need to ramp up productivity by hiring new staff members or get a specialized accounting manager?

No matter what it is, if you can reasonably predict that something in your existing environment will need changing, replacing, or upgrading, then include it in your small business financial planning forecast for the year. If you plan for it, it can’t catch you off guard and you’ll be ready to overcome it with ease.

Financial Planning Tip #3: Estimate your Revenue and Expenses

This is the part of your financial planning annual budget that business owners are likely most familiar with. Take the revenue you earned last year and the expenses you incurred and review how likely they are to remain consistent over the next year. Consider things like variant bills (like gas and electricity or credit card processing fees) that may fluctuate over the course of the year as well as your fixed costs.

Make sure that your margins allow you to leave yourself enough room to grow and a little on the side for unanticipated expenses. If you are finding that you are nearly breaking even or don’t have enough in your rainy-day fund, this might be the time to reevaluate your customer pricing and costs.

This evaluation should be more than just an excel list of numbers and line items. It should spur the conversation toward: is this enough for me to function as the years go by or do I need to make some fundamental changes to ensure stability? Make sure that you can see the long term effects of your decisions based on the data.

Financial Planning Tip #4: Set Attainable Goals and Strategies

Now that we have the realistic foundation set for your business budget planning for the year, it’s time to dream.

  • Where do you want to be at this time next year?
  • What expenses will you need to incur in order to grow the way you’d like to?
  • Is there a new project or iteration you’d like to put R&D (research and development) budget toward?
  • Will you need to expand your marketing efforts to support your growth and development?
financial paperwork on a desk with a pencil

There are so many possibilities here so give yourself one or two overarching projects you’d like to start and then break them out into simple step-by-step goals. This is the best way to stick to a project and it feels good to see actual progress every time you check off another box.

For example, if you’re looking to increase online advertising, review your paid search strategy and outline actionable steps to audit your current ads, then research better keywords, adjust your messaging, a/b test, and implement your new paid search campaign.

By doing this you also have an easy way to set budgets to each step and see the real cost of your projects. If it’s too high to fit into your revenue and expense list from above, then scale it back slightly until it works.

Financial Planning Tip #5: Schedule Monthly Reviews

After putting your small business budget together, plan to take some time each month to have a budget review and check in on your goals. The year will inevitably pass by quicker than expected and it’s easy to let stuffy budgets and granular goals fall through the cracks.

As you close out the month or begin a new one, take an hour or two to go over the changes you’ve made and make adjustments for new information that popped up.

  • Have you made progress on your goals?
  • Are you completing goals that are scheduled for next month?
  • Has something unexpected held back progress financially?
  • But most importantly, has your plan furthered your company’s goals or are they floundering?

There is no judgement, but be realistic with yourself and your small business financial planning strategies every month so that you set yourself up for success and not disappointment.

Is Financial Planning for Small Business Owners Worth It?

The short answer is, yes. It’s still crucial to plan how you’re going to allocate your cash flow in the coming year, even if you are a one man band or still a small company.

Despite the benefits of a budget, the shocking truth is that 74% of small businesses (1-10 employees) didn’t make a budget in 2018. Don’t let this discourage you, though. There is no better time to start budgeting and setting financial goals than right now.

Closing Thoughts on Small Business Planning

Small business financial planning is a difficult but necessary process to get your company strategies ready to not just survive, but thrive. Your annual budget and forecasting process can be a time of excitement if you let it. Set up your business for success and see how well you complete projects, hit your target numbers, and make the money that you need.

Now is the time to review the changes in your industry, anticipate internal expenses, forecasting your net income, set achievable goals, and plan to review your progress over time.

Utilize statements from your credit card processor for insight into the money you’re making, accounting figures to look over your expenses, and judge competitors in your space to see how you can continue to improve your pricing, marketing, and advertisements. Come to an understanding of your financial situation (gleaning insights and planning based on what you already know) to visualize where you want your small business to go.

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