It is important that small businesses have a plan and budget for conducting operations, just as their larger competitors have.
The Small Business Financial and Regulatory Affairs Committee of the Institute of Management Accountants provided some tips.
1. Small business owners need to recognize what a budget is for. It is not an arbitrary limit on spending. It needs to recognize both income and expense targets. IMA added it also should reinforce the adverse financial consequences if either of those goals are not achieved. All figures also need to be based on realistic assumptions.
2. They need to understand their cash flow. Keeping a regularly updated schedule of anticipated cash receipts and disbursements will indicate in advance whether there is enough money to pay employees, vendors, creditors and owners. Knowing this schedule can give business owners a much stronger bargaining position when dealing with lenders and pursuing other sources of capital.
3. Look for opportunities to collect more cash and collect it sooner and opportunities to spend less cash and part with it later.
4. Plan for contingencies. At a minimum, plan for the impact of a natural disaster on the company's operations.
5. Regularly compare your actual results to the budget. Do so at least once a month. Look for trends and adjust the budget accordingly.
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