The Secrets of Financial Control For Big Businesses and Freelancing Success
Cash flow challenges are the fundamental reason why companies that fail go under.
If you are serious about making your small business profitable, then budgeting your money effectively is critical to this success.Successful organisations, large and modest, are successful to the actual measure that they appreciate the value of closely monitored finances and a healthy cash flow. Even the simplest freelancing in other businesses it is absolutely vital to continually scrutinise every expenditure in your business organisation if you wish to still be in business in the future and sustain a economically plausible business.
When establishing a new enterprise it might seem impossible to put together a budget without any financial background on which to base income and costs. However a business plan, before you even start, with some idea of costs and revenues is vital to evaluating the viability of a organisation, even if you are just planning to setup a home based freelancing operation. 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 renovating buildings, 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 with all businesses our become a doctor business has two categories of company finance, income and expenditure.
Under the business costs category there can be many sub-categories usually falling into 2 distinct areas of controllable expenses and uncontrollable expenses. While many business owners 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 responsible for 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 sales begins to fall off, you can control some of these costs by laying-off staff and cutting back on advertising. However, living by a budget may help maintain profitability but could also be counter-productive in the long run.
Depending on the viability of your company it may be a better option 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 supports 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 finance and these are through set amounts or as a percentage of revenue. Many companies will budget their controllable costs by the pound and non-controllable by percentage of sales. Obviously a good part of the owner’s time is going to be based on bringing money into the business and how much they have to spend on controllable expenses will be in direct relation to income. With any increase 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 sales.
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 vacation time or other staff benefits determined by the employer. These need to be calculated into costs when recruiting new employees into the business, unless you make extensive use of outsourcing services.
While you may think a budget is impossible to establish for a new company, it is essential to establish a healthy and sound financial base 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.
This entry was posted on Sunday, January 24th, 2010 at 5:20 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.