Pride Of The Web –

Cash flow deficiencies are the fundamental reason why companies that fail close down.

If you’re seriously interested in making your business profitable, then budgeting your money efficiently is critical to this success.Whether you run a straightforward work from home small business freelancing administrative work or command a multinational company, effectively managed finances and in particular a strong company cash flow, are crucial.

When founding a new enterprise it might seem impossible to put together a budget without any financial background on which to base income and expenses. However a business plan, before you even start, with some idea of expenses and revenues is vital to evaluating the viability of a company, even if you are just planning to setup a work at home freelancing business. It might seem like guesswork at the beginning, but a tentative budget can be established with some thought and projections of future business. From some past experience in refurbishing houses, I always say ‘think of a figure and double it’ and then you will be near the mark. I think this is true for other companies, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.

As all businesses do the plumbing apprenticeships business we run has two categories of business finance, income and expenses.

Under the business costs category there can be several sub-categories mainly falling into two seperate areas of controllable expenses and uncontrollable expenses. While many business directors and freelancers believe they can control every expense involved in their company, this is not generally the case. Some things such as services costs, the amount of rent and other supposed fixed costs can, and do change, with the owner having no control. For example the recent increase in gas prices are an example of this and have been the reason a number of small airline and transportation companies going out of business as their fuel costs skyrocketed.

Other expenses such as payroll, insurance and advertising can be subject to a budget, but they are considered controllable expenses. If the business begins to reduce, you can control some of these expenses by making redundant employees and cutting back on advertising. However, living by a budget may help maintain profitability but could also turn against you in the end.

Depending on the viability of your organisation it may be a better investment to bite the financial bullet on employee wages and still provide good customer service to the remaining clients until business picks up again, or consider outsourcing and freelancing for when you need a bit of extra help but without having to hire new staff. If no one takes care of the customers, it will not be long until there are no more customers to care for.

There are 2 ways to budget your business money and these are through set amounts or as a percentage of turnover. Many companies will budget their controllable expenses by the pound and non-controllable by percentage of income. Obviously a good part of the owner’s time is going to be based on bringing sales into the organisation and how much they have to spend on controllable expenses will be in direct relation to sales. With any upturn in sales the owner will probably need the extra help to take care of the business so a percentage of income will go to more wages, thus freeing the owner to focus on generating additional revenue.

There are many other costs that fall into the payroll account such as worker’s compensation charges, National Insurance tax paid by the employer and paid holidays time or other staff benefits determined by the employer. These need to be calculated into costs when recruiting staff into the business, unless you make extensive use of outsourcing companies.

While you may feel that a budget is impossible to compile for a new company, it is vital to establish a healthy and sound financial foundation on which success can be built for the future.

About the Author: Roger Davies, is the Managing Director for Advanta Productions and is responsible for a web developer unit based in the Midlands serving businesses in the Nottingham, Derby and Loughborough areas. Advanta have worked on hundreds of web development projects. If your website needs development or if you want to sell on-line contact Roger on 0845 22 55 805 or via the website.

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