Running a business can be fantastic until you run out of money. It can be an expensive thing to do, particularly when you are first starting up and so it is important that you make sure you budget carefully. Below are some tips on how to do this.
Have a Contingency
The first thing to consider is having a contingency. However much money you calculate that you will need to finance the business, you should always make sure that you have some extra put by. It is so easy to forget certain expenses or just generally miscalculate how much your business will cost you. It is wise to add 10% to the costs as a minimum and tuck that money away where you cannot get at it. Hopefully you will not need it, but if you do, it will be there waiting for you.
Do not Pay Yourself
Many people assume that they will be able to draw a salary from their business as soon as they start. This is often impossible and so it is wise to just not pay yourself at all to start with. Assume that you will get no money and make sure that you will therefore be able to get paid in other ways. You may need to invest some money so that you can be paid a passive income from that investment or have a lump sum of savings that you can draw from. Remember that it is important to keep your household money separate to your business.
Reinvest Back in the Business
You will need to reinvest back into the business to start with. This means that any money that you make will need to be spent again in order that you can expand. You may need it to buy stock, pay for advertising or other things. Keep the money buy until it is needed by the business but do not be tempted to spend it on unnecessary things.
You will need to calculate the costs before you start. Think about all of the expenses that the business will have and how you will be able to afford them. Consider the costs of stock, websites, advertising, staff, premises, travel, utilities, mobile phones, internet and everything else that your business may need to pay out. Do not forget to allow for the cost of taxes, so calculate profits each month so that you can put by the amount of money that you will be liable to pay in tax on it.
Be Careful with Spending
Once you have a spending budget it can be tempting just to buy things. You may be able to afford all sorts of things and be tempted to have some fun with spending money but you will find that it will not go far. Until you start having a good income coming in and even after this happens, you need to be very careful about spending too much money as it could end up putting your business at a loss.