It takes a lot to run a business. Courage, integrity, perseverance, all topped with a considerable dose of managerial and organizational skills. But in the end, a successful business is one that brings profits, aside from beneficial products and services. And to get to the profitable part, a lot of financial planning must be done. Here’s what you should keep in mind.
Budgeting is the intricate, tactical process of planning ahead in the matter of financial resources. It can make the difference between succeeding or failing, between staying on the market or going out of business. With such a decisive role in the life of a company, budgets deserve our unwavering attention. In short, the purpose of a budget is being one step ahead of any mishaps that might happen. The longer version is below.
Cashflow, overhead, static, master, operating, sales, marketing, production, fixed, flexible, incremental, value proposition, activity-based, zero-based, and so on and so forth. There are so many ways to classify budgets, depending on what aspect of it you’re trying to define. To make everything easier, we’ll just go through those parts of a business that require and benefit from budgeting.
So what should you budget for? Whether the business in question is a small or a large one, the basic components that need a thorough financial plan are the following: office space, personnel, software and hardware assets, clients
From paper towels to water coolers, from screen-cleaning sprays to whiteboard markers, and from coffee to post-its, you have to keep track of every single cog and gear that is part of the workplace. Offering employees a comfortable, supportive environment is key in retaining them and, as discussed previously, their loyalty translates into productivity which in turn creates profit for the business.
There’s a lot to take care of in an office space. There are the obvious parts, such as office supplies, furniture, appliances, and then there are those that can easily slip your mind, like AC maintenance, electronic waste disposal, or maybe skyscraper high-rise window cleaning. All these elements can be identified by a meticulous initial analysis. Even so, it’s more than likely that you’ll overlook something, as a company’s work environment is ever-changing. No need to worry, simply keep your office space budget close and updated, by adding new expenses and deleting old ones.
Budgeting for personnel is trickier than buying paper towels. There has to be equity between the costs associated to employees and the revenue that they bring in. Any imbalance will affect the well-being of both the employee and the company. If too much is being spent on the employee in comparison to what (s)he is yielding, that employee is no longer cost-effective. No profit for the company, no money to pay salaries, and therefore someone will be getting the boot.
On the other hand, if the employee’s paycheck is not in accordance with what (s)he is producing for the business, discontent will slowly creep in and disrupt the company-staff relationship. Not feeling appreciated leads to disengaged employees, which once again turns into low productivity and thin profits. No profit for the company, no money to pay salaries, no funds for training or development, and… you get the picture.
In conclusion, take good care of your employees when you’re drafting a personnel budget. It doesn’t come down just at paying their salaries. It’s about making them comfortable and instilling a sense of purpose and belonging. If this means offering employee development programs or giving them a free lunch, be prepared to set some money aside.
Software and hardware assets
We live in a tech-driven world. There’s no doubt about that and no option but to keep up with the times. Almost all of our work actions are done through an electronic device. We work on PCs and laptops, we communicate by phones, we meet each other through AV equipment. We’re hooked. And it’s great.
Keeping a hardware inventory is pretty straightforward. PCs, laptops, monitors, routers, mice, keyboards, tablets, phones, cables, adaptors, headphones, speakers, chargers, and so on. It’s there, it’s tangible, it’s countable. It’s simple to budget for. Software requires a bit more attention. Is it a one time payment? Is it a subscription? If so, when does it expire? Is it payable by month, by year, or does it have a different payment timeframe?
Another thing worth mentioning here is that the entire fleet of technological devices requires maintenance and constant update, so make sure you include that in the asset management budget. It’s useless to have a large supply of devices, if they don’t work properly.
A company’s clients are its source of revenue. Obviously, they will have to be handled with great care. But how much of an effort should you do for each specific client? Well, similar to the case of employees, it depends on how valuable that client is for the business.
Now, we’re not saying that clients who do not bring in big money should be ignored or treated poorly. It’s simply about balancing your efforts and focusing resources proportionately to the respective incoming revenue. Let’s take the example of a sales meeting designed to bring in a new client. What exactly are the costs of the meeting?
For starters, there’s the space. There are costs associated to each room inside an office building. Electricity, tech equipment, room upkeep, everything that makes that space functional has a price. This is why YArooms, the room booking system, has implemented advanced financial reporting – to identify precisely what the cost/income ratio is for each space. Then there’s the amenities – coffee, other beverages, maybe lunch, brochures, branded stationery etc. How do you want to greet the potential client? Should you go all out? Or rather, is it worth it to go all out or is a basic welcome package enough?
What are the benefits or advantages of the meeting? Is the client going to tip the scales in your company’s favour? Is it a promising stream of substantial revenue? That’s for you to assess, compare to the costs, and make a decision regarding efforts.