Your payroll is one of the biggest expenses of your business. You can't afford to fall behind on other payments just to make sure all of your employees get their deposits every pay period, however.
You need to be able to balance how much you spend on payroll with all your other business expenses. The best way to do this is to understand how your company budget works as a whole, which is a pretty big task!
But although this is a pretty detailed process, it doesn't have to be difficult.
Here are 9 tips to help you set up - and stick to - the company budget with ease.
1. Be Realistic
It doesn't matter how well your business is doing or how well you wish things were going - you have to be realistic when budgeting. Be honest with yourself when things are bad. Try not to make your money stretch further than it actually can, and be conservative with every penny when things are tough.
These are good practices to follow even when business is good. It helps you make the most of all your earnings and to create a strong understanding of how every dollar is coming and going.
2. Prioritize Your Big Expenses First
One of the best ways to be realistic about your expenses is to prioritize your most expensive payouts over your smaller ones.
Some big expenses you may have in addition to payroll include:
- your office lease and associated bills (electric, internet, maintenance, etc)
- monthly/quarterly/annual marketing campaigns
- vendor agreements*
If you run a restaurant, your vendor agreements are the food deliveries you schedule each month. If you're a sole proprietor who outsources things like marketing efforts and customer support, these are the vendors you need to account for.
The big expenses you have largely depend on the kind of business you run. One thing is for sure, however: you can't expect to make ends meet with your company budget if you don't stay on track when paying these expenses.
3. Set Aside Some Emergency Funds
The thing about setting a company budget is that it will never be set in stone. Something is always bound to come up whether it be the need to hire someone new due to company turnover or an investment opportunity you really can't pass up.
You need to be able to cover these costs as they come up, and the best way to do so is to set money aside now for the situations that may happen later. Always try to add some money to your emergency funds. The more you have, the better of a position you'll be in to resolve a financial problem or leverage your money even more.
4. Understand That Some Expenses May Change
There are some expenses that will hit you out of nowhere, and then there are the expenses that are hard to predict an exact number for. Such is the case with things like your office's monthly electric bill or other overhead costs. Always try to add a little more to your budget when accounting for expenses that may vary.
This ensures that your budget can cover everything it needs to. Plus, anything you have left over can roll into paying the following month's bills or to your savings funds.
5. Don't Forget to Account for Taxes
Taxes can seriously hurt your company's budget if you forget to account for them. This is something you should be saving for throughout the year, especially if you're a small business or a sole proprietor.
Bigger businesses typically don't have to worry about having enough money to cover their taxes. It's smart for them to learn a thing or two about deductibles, on the other hand, and figure out how to get the most out of paying this expense.
Also, keep in mind that taxes go hand in hand with payroll. You have to decide whether you're going to take taxes out of a person's pay or if you're going to let them handle their taxes on their own. One version means you have an employee while the other allows you to pay sole proprietors or contractors.
Be upfront with your team about the pay structure you set in place before you bring them on board. More so, make sure you and your payroll services team are crystal clear about tax expectations if you're outsourcing your payments process.
6. Learn the Difference Between Income and Profit
Taxes are always due on a company's income. Your overall company budget should be based on your profit, however. You have to account for every single dollar that comes into and goes out of your possession.
This helps you identify how much money you can expect to make as income, but more importantly, it helps you understand your margins. Margins are a big part of creating a successful business. You want to create the biggest margins possible in order to keep profits high.
7. Manage Your Inventory
Here's something else to think about when budgeting: assets.
Your budget shouldn't cover your cash-in-hand (i.e. bank statements) alone. It also needs to include your company assets - like the equipment you use, the materials you've purchased, and the products you have ready to sell. Your assets should then be depreciated as needed.
8. Double and Triple Check All Your Calculations
Once you've covered every part of your budget, go back over it. Then, go over it again! You have to make sure every single plus and minus is accurate. All it takes is one calculation mishap to throw your whole budget off balance.
Thankfully, that's what a balance sheet is for.
This is a more in-depth part of budgeting, but it helps ensure that all your bases are covered. Your balance sheet should have the same amount of assets as it should liabilities and equity. This is how you can be absolutely sure that your company budget is correct.
9. Build a Budgeting Team
Are you realizing that budgeting is a little more complicated than you thought? Do you wonder how you're going to successfully manage a budget all on your own?
Good news - you don't have to!
It may be time to build an internal finance department within your small business. Or, at least consider hiring an accountant or a financial consultant to check the numbers you've come up with.
Top-Notch Company Budget Tips and Personal Financing Insights
You can read all the budgeting tips you want, but the best way to create an accurate, dependable company budget is to work on understanding the numbers.
You should know all your business operations like the back of your hand. You need to be able to identify all the incoming cash flows you have and where it all goes once it's in your possession. The better you get at doing this, the more accurate your company budget will be for things like payroll, overhead, and everything else.
Once you get a handle on this, you can try your hand at improving your personal budget. Or, you can invest in a tool like Acorns to make personal financing easier!