The Secrets of Financial Control For Big Businesses and Freelancing Success
Cash flow deficiencies are the fundamental reason why companies that fail go out of business.
If you are seriously interested in making your business a success, then managing your money effectively is critical to this success. It doesn’t matter if you only have a simple home freelancing operation, or are responsible for a nationwide concern, lean gearing and in particular a positive cash flow, are absolutely essential to business success.
When establishing a new business it might seem hard 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 costs and turnover is essential to evaluating the viability of a organisation, even if you are just planning to setup a home based freelancing business. 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 houses, 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 companies, 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 many sub-categories often falling into two distinct areas of controllable expenses and uncontrollable expenses. While many business owners 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 companies 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 revenue begins to reduce, you can control some of these expenses by making redundant employees 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 excellent 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 2 ways to budget your business money and these are through set amounts or as a percentage of sales. Many companies will budget their controllable expenses by the pound and non-controllable by percentage of revenue. 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 sales 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 revenue.
There are many other costs 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 company. These need to be built into costs when recruiting people into the company, unless you make extensive use of outsourcing organisations.
While you may think a budget is impossible to establish for a new business, it is vital to establish a healthy and sound financial base on which success can be built for the coming years.
About the Author: Roger Davies, The Managing Director at Advanta Productions an e-commerce, web design and SEO company in the heart of the Nottingham, Derby and Loughborough business community has overseen the team that has created and published hundreds of websites. If you don’t know where to start with your website development or don’t know how to advertise or sell on-line don’t worry contact Roger at Advanta on 0845 22 55 805 or via the website.
This entry was posted on Monday, December 21st, 2009 at 7:50 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.