We all like to keep a tight ship when running the finances of a business. The more you can keep things under control and to plan, the easier it is to avoid real financial peril. It’s not always that easy, however. Costs can add up faster than expected, new ones can suddenly arrive, and you might have a slow season that you need to adapt to. To make sure your business and weather a little money turbulence, it’s best to give your budget a little wiggle room. But how?
Know how to budget for it
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The more flexibility you can prepare in advance, the better. But how do you prepare flexibility? By setting up protections for your existing funds. Having significant cash reserves in business is necessary, and you should budget to grow a rainy-day fund or an emergency fund from your profits as shown by Smart Company. Don’t treat profits like a piggy bank and don’t invest 100% of it back into the business. Set some aside and know that it’s there to rely on when you need it. What’s more, invest in protections like insurance for your equipment so that should they ever break, you don’t have to break into your emergency fund to set them right.
Know your sources of funding
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When you can’t tap into an emergency fund, then having a sudden cost land on your doorstep can become a real crisis. If you’re unable to pay it back, it could mean going into debt with some unreasonable repayment terms. Instead, know sources of funding you can tap in advance. Lenders and financiers can offer much more manageable repayment periods and secure better interest rates than letting your bills to other services grow too much. A company credit card can help you cope with much smaller expenses, too. Borrowing might mean you have to tighten the purse strings in future, but as a fast response to short-term crises, few things work better.
Know the costs you could cut tomorrow
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Cost creep can easily happen over time. You might be running along fine until you find that you have that unexpected expense on your lap and all of a sudden, you realize your costs have grown so much that you simply don’t have the funding set aside to deal with it. When that happens, you need to think about how you can save money, particularly by looking at overheads you shouldn’t be paying.
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It might mean selling some old, underutilized equipment, ending your contract with some outsourced services to take on their duties yourself, or even cutting staff that don’t justify their own costs. Have a plan set up in advance where you look at what costs you can cut first in case you ever need to.
It’s crucial to know how to protect your finances, how to find funding when you need it, and what to cut when you absolutely need to make cuts. If your accounts are too rigid, it also means they’re brittle. Just a few small changes, like one less major client or one sudden new expense, can put you in real danger. Don’t let that happen.