News 107

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

If you’re seriously interested in making your firm profitable, it follows that budgeting your dollars effectively is essential to the security of your organisation.No matter whether you operate a vast or modest company, success is dependent on carefully managed finances and a healthy cash flow, even simply just industrial floor cleaning individuals will require an amount of up front capital from time to time, which calls for a positive cash flow.

When founding a new enterprise it might seem hard 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 expenses and turnover is vital to determining the potential of a organisation, even if you are just planning to setup a home based freelancing business. 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 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.

Here at Electricity Prices Comparison the same two areas of business finance affect us, as with all businesses there is income and there are expenses, ideally the former is greater than the latter.

Under the business costs category there can be other sub-categories usually falling into two seperate areas of controllable expenses and uncontrollable expenses. While many business proprietors and freelancers believe they can control every cost involved in their organisation, 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 businesses 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 sales begins to reduce, you can control some of these expenses by laying-off employees and cutting back on advertising. However, living by a budget may help maintain profitability but could also be counter-productive 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 clients 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 employees. If no one takes care of the customers, it will not be long until there are no more customers to care for.

There are two ways to budget your business money and these are through set amounts or as a percentage of revenue. Many companies will budget their controllable costs by the pound and non-controllable by percentage of income. Obviously a good part of the owner’s time is going to be based on bringing money into the business and how much they have to spend on controllable expenses will be in direct relation to sales. 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 sales.

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

While you may think a budget is impossible to compile for a new organisation, it is vital to establish a healthy and sound financial foundation on which success can be built for the coming years.

About the Author: Roger Davies, is the Manager at Advanta Productions Ltd and oversees the web developer team serving businesses in Nottingham, Derby, Loughborough and other areas in the Midlands. Advanta have successfully completed hundreds of website development projects. For website development enquires or to advertise your business on-line telephone 0845 22 55 805 or visit the website.