October 16, 2013 THE VILLADOM TIMES I • Page 9 Tips for developing a small business budget Budgeting is important for businesses big and small. While corporations or larger organizations might be able to stretch their budgets when necessary, small businesses often do not have a lot of leeway. Because small businesses are often less financially flexible than their larger competitors and counterparts, small busi- ness owners tend to agonize over their budgets when starting out. Part of that struggle may stem from small business owners who specialize in their trade but have little experience running a busi- ness. But determining a small business budget is essential to a business’ success, as it helps owners determine if they have enough money to fund the business and its potential expansion while also provid- ing owners with a steady income. Each industry is different, and budgets that work for one business will not neces- sarily work for another. But the following tips can help business owners develop an effective budget regardless of their indus- tries. Understand the industry. Under- standing the industry and knowing the product are two different things. When establishing a budget for a new business, small business owners should familiarize themselves with the industry they will be joining and calculate the cost of machin- ery and materials. The prices of materi- als can fluctuate depending on supply and demand, but small business owners developing a budget can research how such costs have fluctuated in the past or speak with current business owners to determine how much of their initial cash supply and future revenue will need to be allocated to production costs. Another thing to learn about the indus- try is if there are certain trends that may dictate revenue stream. For example, a surf shop likely will not bring in as much revenue in the winter as it will in the summer. Such trends are not exclusive to seasonal businesses, and business owners need to take them into consideration when developing a budget. Doing so will help businesses stay afloat during those times when a particular industry traditionally struggles. Know how to allocate revenue. Devel- oping a budget for a startup can be tricky, as it is hard to know how to allocate rev- enue when it is not known how much rev- enue the business will generate. However, that does not mean future revenue cannot be allocated. In fact, doing so is entirely necessary. Calculating operating costs, which include materials, labor, the rent or mortgage on the property where the busi- ness is housed, and taxes, among other expenses, helps a business owner deter- mine how much revenue will be needed to make the business work. Knowing the percentage of revenue that needs to go toward operating costs can help a busi- ness owner develop a realistic budget for the first few months. Build some breathing room into the budget. Including extra funds in the budget will help should the estimated revenue fall short of actual revenue, or if the business takes off and more money is needed to meet customer demand and/or expand the staff. In addition, factoring in some breathing room will come in handy should costs for rent or materials sud- denly rise. Develop a secondary emergency budget. Figures regarding the survival rates of new small businesses vary sig- nificantly. Conventional wisdom has long suggested such businesses fail far more often than they succeed, and many fail rather quickly. However, according to the Bureau of Labor Statistics, roughly half of all new businesses survive five years or more, and about one-third survive for a decade or more. But surviving five years is not necessarily a 50-50 proposi- tion, as small business owners who plan ahead for emergencies are likely in better positions to make it to 10 years than those who do not plan in advance. When devel- oping a secondary emergency budget, include cost-cutting measures, which can make it easier to make tough decisions if money becomes tight and bills still need to be paid. Adversity is to be expected, and having a plan in place will make it easier to manage. Review the budget regularly. Once the business has opened, owners should review their budgets to determine if money is being spent as wisely as pos- sible. For example, if some costs were overestimated, the money not being used for those expenses could be used to grow the business. Larger businesses can afford to estab- lish yearly budgets because they have more financial flexibility. But small busi- nesses are more vulnerable to volatile markets or unexpected costs, so small business owners should review their bud- gets more frequently and make changes they feel are necessary.