In this piece, CHINECHEREM OBASI writes on the need for small business owners to have a budget plan for the year
For failing to create a budget plan, a lot of small business owners have encountered challenges, as the majority did not realise they had spent more than they earned and slowly sunk into debt. Worse still, many small business owners do not even know what cash flow is, let alone understanding its management.
People spend so much during the year without budgeting, research has shown. According to a survey conducted in October 2021 by ENGINE Insights, 81 per cent of respondents, who made resolutions, said they would be better off financially in 2022, compared to 58 per cent of those who did not make any promises.
Thus, having a budget seems the effective way of keeping businesses afloat.
John Okonkwo, a spare parts trader at the popular Ladipo market, Lagos State, told Financial Street that he does not know how to create a simple budget plan for his business.
Okonkwo said he gets indebted to people that supply him goods every year, adding, “I leave my house very early in the morning, so that I will not be disgraced by my creditors.”
No budgeting
Lack of budget is one of the reasons small businesses fail. According to a study done by CB Insights, a market intelligence platform, planning your spending will help you make informed decisions and tackle any unwanted financial surprise.
It showed that a few of the main reasons small businesses fail include price and cost issues, loss of focus and running out of cash. Having a realistic budget in place could prevent these issues.
Whether a business is setting up short-term or long-term goals, the goal should be practical to directly affect the incoming and outgoing cash.
Learning to budget
Mrs Juliana Chukwu, a hair stylist at Idimu Road in Ejigbo, Lagos, also told Financial Street how she learned to budget for her small business. For example, she said before November ends, she would plan sales for the Christmas season.
“Because of the many demands in December, I usually make arrangements with the wholesales shops, and sometimes with the company that supplies me hair attachment, weave-on, wig and other hair products,” she explained.
According to Chukwu, doing so increases her sales and turnover.
“Notwithstanding, your monthly expenses should be scrutinised to make your yearly budget realistic,” she added.
According to experts, people make budgets in order not to spend more than their income. Some check-list their expenses because they want to monitor their income and know what they gain from the business.
Last line
Budgeting is something that should not be overlooked. A budget allows a business owner to plan their expenses, reach their business goals and anticipate any operational changes. Also, a well-planned budget helps to control a business, track expenses and save money.
