Many people view budgeting as a time consuming exercise that they would gladly live without. It is time-consuming and poses a real challenge for small business owners, especially tradespeople, who have to handle purchases, project management, debt collection, and marketing while running a business as well.To achieve success in business it is vital to have a budget. This will help you keep track of your expenses and effectively manage your cash flow. Having a healthy cash flow is vital for your long term business survival.
Without a budget, you will run the risk of spending more than you earn. Continued losses cannot be sustained and eventually your operations may be greatly hampered. Preparing a budget and matching expenses to revenue can help you determine whether you have enough funds for a project. It can also guide you in deciding if and when to expand your operations.
Budgeting tips for tradespeople
To get you started, there are a few tips you can put into practice in order to create a simple and effective budget.
1. Know your risks
As a tradesperson, you will need to factor in the risks that your trade faces. If there is one thing that is clear today, it is that every business has some level of risk associated with it. Failure to plan for these risks can be very damaging to its long term future. Make sure you look at the long and short term risks to accurately plan your finances. In this industry, most of the times the jobs aren’t as straightforward as you would want. There are labor expenses, purchasing commitments and tasks, all of which get invoiced at different time frames. Not to forget job setbacks such as bad weather that can push your time commitment to a job past the forecasted length.
This calls for a proactive approach to budgeting. By identifying the problem areas and marking all potential risks you can create a flexible budget, helping to keep the cash coming in.
2. Don’t under budget
Under Budgeting is common in this field. It is easy to budget for a contract only to end up spending way more than anticipated. The solution is equally easy ⎼ slightly overestimate your expenses to allow for this. Business operations are usually on a project to project basis and each client is distinctive. As different projects will more often than not turn out differently making it difficult to predict when a project might go over budget. When the hidden cost is necessary to a job, there is no sidestepping it. Making allocations a little above the expected costs can help you ensure that you don’t get caught short.
3. Base your budget on a full calendar year
If your trade is prone to off season slumps, you should avoid doing monthly or short-term allocations. Instead, you should budget for expenses based on when they are likely to come up during the year. Remember, when the peak season ends and the dip in income begins, you will still need to support your business operations. You should use the off-peak season to ramp up your marketing campaigns. A great way to start is to write down all the expenses over a certain period of time and identify the areas where you might be overspending. Once you cut any unnecessary peak season expenses and save for the off-peak months, you will be able to keep your business vibrant and profitable all year round.
4. Budget for all big purchases
When not properly planned for, big purchases can leave a huge financial burden on your business. It can be that you need a new piece of equipment, new software system or a vehicle. Some of these expenses can happen when least expected, like an essential tool needing a replacement. However, planned expenses should be well timed and budgeted to fit into your cash flow. As a tradespersons budget has little room for error, and spending more than you need to on a big purchase could harm your business.
Having an up-to-date budget and educated financial projections can safeguard your business as well as guide you when making large investments in your business.
5. Get an accountant
Whether or not you are capable of doing your own taxes, bookkeeping or any other financial obligation, having a professional accountant can do you a world of good. An accountant can assist you with lots of things pertaining to your trade and allows you to get on with the day job!