It seems like the government thinks they have an endless supply of dollar bills, the way they like to throw our tax dollars around.
But believe it or not, the government has to use an annual budget, and they have agencies in place to make them stick to it (whose purpose is actually to try to save your tax dollars, not spend them).
Here’s a recent example of the federal budget in action (which can impact you as you’re considering your annual business budget): Policymakers are soon expected to cut the federal interest rate a quarter percentage point (0.25 percent) – despite the impact of the recent hurricanes in the Southeast and the Boeing worker strike.
Meaning: If you’ve had business expansion ideas that you need to take out a loan for, the new year would be a better time to act on those plans as lower interest rates on loans are likely in 2025 (make sure to consult your financial advisor on loan terms and other important factors). And the good news is that rate could continue to drop this year and into next.
But if you’re not even considering a budget for next year, you’re not the only one – most business owners don’t (more on that later). However, this isn’t ideal. Not having a budget puts you in the position of solely relying on cash flow to gauge the financial health of your Miami Metropolitan business, which I can tell you, is not a sufficient barometer.
Trust me – If you want to see true, sustainable profitability, you need a budget.
I know it’s tedious, but if you invest the time and effort, you won’t regret it (and we can help keep you accountable along the way).
Your Southeastern FL Business’s Budget Should Start Here
“Unless commitment is made, there are only promises and hopes; but no plans.” –Peter F. Drucker
‘Tis the season for business budget planning, and I know you’re just giddy with excitement about it (or, not so much?).
It’s tempting to sweep the budgeting issue under the rug or to just make a half-hearted stab at it. And most business owners are doing just that – about 54 percent of small business owners don’t have any kind of formal budget.
But please hear me when I say, your business must have a budget. Without one you’re bound to waste money, misuse time and resources, and actually prevent your company from growing optimally.
Your biggest plusses to realistic budgeting: 1) Track your progress toward your goals, 2) confidently manage your cash flow, and 3) gracefully find the way forward when unexpected events occur — and if this hurricane season (or even supply chain shortages and dock worker strikes) has taught us anything… it’s that the unexpected will happen.
So today, I’d like to give you some pointers for avoiding business budget mistakes that I commonly see.
1. Realistically estimate sales.
It’s common for business owners to ambitiously forecast sales for the upcoming year. But overestimating your sales could lead to overspending, which could put you in a serious cash flow predicament.
So, how do you accurately estimate your sales?
- Use historical data to build your projections (it’s a bit more concrete than wishful thinking).
- Account for market changes, economic factors, and competition.
- Implement a rolling forecast – be prepared to revisit your sales estimates based on actual performance throughout the upcoming year (ideally every quarter) and adjust accordingly.
2. Accurately account for expenses.
Underestimating expenses can be just as dangerous as overestimating sales – it can lead to cash flow problems and even debt if you get blindsided by too many overlooked costs.
When planning your expenses for the upcoming year, leave no stone unturned. Make a checklist for easily overlooked costs such as legal fees, utilities expenses, hiring expenses, or insurance increases.
Again, use historical data to your advantage. Review your numbers from last year to observe trends in expenses and anticipate future costs (keeping in mind how expenses might fluctuate seasonally).
3. Create a contingency plan.
Equipment breaks. Worldwide pandemics cause shutdowns. Hurricanes devastate cities (I’m looking at you, Helene and Milton) – it’s just life. And without a contingency fund in place, one unplanned event like this could mean a significant setback in profits.
Allocate 5-10 percent of your budgeted expenses for an emergency fund, to start out with. This amount may vary depending on your business’s risk tolerance, cash flow needs, and your industry’s volatility. If you can’t start with 5 -10 percent, starting with any percentage will do. You can always work up to a larger amount over time.
Then (for the sake of your peace of mind), do some scenario planning. Envision scenarios in which the most likely and worst case events like the ones mentioned above occur and write up a plan of action.
For example, some questions you could ask yourself: How would your cash flow be impacted by a recession? How would you respond to an emerging competitor offering better prices? How could you reallocate resources if you had to recover from a natural disaster?
The time for creating next year’s business budget is here. While it might be a tedious process, the unexpected disasters and the uncertainty swirling from the upcoming presidential election demonstrate that having a sound budget is more important than ever.
And as a final tip – consider tax planning moves and deductions and credits you can take as a factor in your budget. See where you’re missing opportunities or where you need to make strategic shifts in your Southeastern FL business to reduce your tax burden. We’re here to guide you on that one.
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To a budget-strengthened new year,
Ralf Heyer