The Secrets of Financial Control For Big Businesses and Freelancing Success
Cash flow problems are the fundamental reason why companies that fail go out of business.
If you are serious about making your firm a success, then budgeting your hard earned money properly is essential to the security of your organisation.Whether you run a straightforward run at home firm industrial floor sanding admin projects or manage a multinational corporation, effectively managed accounts and in particular a balanced company cash flow, are essential.
When founding a new company 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 turnover is essential to evaluating the potential of a organisation, even if you are just planning to setup a home based freelancing operation. It might seem like guesswork to start with, 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 businesses, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.
The ‘how to make curry‘ website business run by one of our clients, as with any business, has two distinct categories of business finance, income and expenses.!).
Under the expense category there can be many sub-categories often falling into two main areas of controllable expenses and uncontrollable expenses. While many business proprietors 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 firms going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, insurance and building repairs can be subject to a budget, but they are considered controllable expenses. If the sales begins to reduce, you can control some of these costs by making redundant staff and cutting back on advertising. However, living by a budget may help maintain profitability but could also turn against you in the end.
Depending on the viability of your company 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 takes care of the customers, it will not be long until there are no more clients to care for.
There are two ways to budget your business money and these are through set amounts or as a percentage of income. Many organisations will budget their controllable expenses 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 revenue into the organisation and how much they have to spend on controllable expenses will be in direct relation to sales. With any upturn 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 employer and paid holidays time or other staff benefits determined by the employer. These need to be built into costs when recruiting people into the organisation, unless you make extensive use of freelancing services.
While you may think a budget is difficult to establish for a new organisation, it is essential to establish a healthy and sound financial footing on which success can be built for the coming years.
About the Author: Roger Davies, is MD for web design company Advanta Productions, incorporated in 2004 to enable businesses in the Nottingham, Derby & Loughborough areas to successfully take advantage of Open Source solutions available and acquire the latest web technologies at affordable prices. For enquiries telephone 0845 2255 805 or visit the website.
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