Cash flow challenges are the fundamental reason why companies that fail go out of business.

For anyone who is serious about making your small business a success, then controlling your money efficiently is crucial to the security of your organisation.Even if you merely run your own straight – forward floor sanding & sealing concern, or regulate a new multi million pound business, tightly managed finances and a good cash flow, are important elements in businesses success.

When establishing a new enterprise it might seem difficult 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 essential to assessing the potential of a business, even if you are just planning to setup a work at home 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 refurbishing properties, 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 organisations, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.

As is the way with all businesses in our lace tablecloths business we have the same two areas of business finance, the income and the expenses.

Under the expense category there can be other sub-categories mainly falling into 2 distinct areas of controllable expenses and uncontrollable expenses. While many business directors and freelancers believe they can control every cost 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 firms going out of business as their fuel costs skyrocketed.

Other expenses such as payroll, transportation and building repairs can be subject to a budget, but they are considered controllable expenses. If the revenue begins to fall off, you can control some of these costs by laying-off staff and cutting back on marketing. 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 customers 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 clients, 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 businesses 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 sales into the business and how much they have to spend on controllable expenses will be in direct relation to income. With any increase in business 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 income.

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

While you may think a budget is difficult to establish for a new business, 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 Advanta Productions most experienced web developer managing a team of developers serving businesses in the Nottingham, Derby & Loughborough areas in the Midlands. Advanta regularly work on website development and e-commerce web design projects for businesses successfully advertising and selling on-line. For enquiries telephone 0845 2255 805 or visit our website.