The Secrets of Financial Monitoring For Big Businesses and Freelancing Success
January 25, 2010
Cash flow challenges are the fundamental reason why companies that fail go out of business.
If you are serious about making your venture a success, it follows that budgeting your hard earned money efficiently is critical to this success. Whether people run a vast or modest company, triumph is dependent on conscientiously handled finances and a positive cash flow, even plainly freelancing sellers will have to have an amount of up front money from time to time, which requires a positive cash flow.
When starting a new enterprise it might seem impossible to put together a budget without any financial history on which to base sales and expenses. However a business plan, before you even start, with some idea of costs and turnover is vital to evaluating the potential of a company, 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 renovating properties, 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.
Our electricity prices comparison business, as with any business, has two distinct categories of business finance, income and expenses.
Under the expense category there can be several sub-categories usually falling into two seperate areas of controllable expenses and uncontrollable expenses. While many business owners and freelancers believe they can control every expense involved in their business, 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 electricity 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 business begins to fall off, you can control some of these costs by laying-off staff and cutting back on marketing. However, living by a budget may help maintain profitability but could also be counter-productive in the end.
Depending on the viability of your business 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 staff. 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 finance and these are through set amounts or as a percentage of sales. Many businesses will budget their controllable expenses 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 company 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 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 staff benefits determined by the law. These need to be built into costs when recruiting people into the company, unless you make extensive use of freelancing organisations.
While you may think a budget is difficult to compile for a new organisation, it is essential to establish a healthy and sound financial foundation on which success can be built for the future.
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.