The Secrets of Financial Control For Big Businesses and Freelancing Success
January 25, 2010
Cash flow deficiencies are the fundamental reason why companies that fail go under.
If you’re seriously interested in making your venture profitable, then controlling your money properly is critical to this success.It does not make any difference if you only have a simple home based freelancing business, or are responsible for a nationwide concern, lean finances and in particular a decent cash flow, are without a doubt critical to businesses being successful.
When establishing a new business it might seem hard to put together a budget without any financial history on which to base income and costs. However a business plan, before you even start, with some idea of expenses and turnover is essential to evaluating the potential of a business, even if you are just planning to setup a work at home freelancing operation. 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 refurbishing buildings, 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 businesses, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.
As with all businesses our become a doctor business has two categories of company finance, income and expenditure.
Under the expense category there can be several sub-categories often falling into two seperate areas of controllable expenses and uncontrollable expenses. While many business owners and freelancers believe they can control every cost involved in their business, this is not always 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 companies going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, insurance and advertising 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 expenses by making redundant staff and cutting back on advertising. However, living by a budget may help maintain profitability but could also turn against you in the long run.
Depending on the viability of your company it may be a better option to bite the financial bullet on employee wages and still provide good customer service to the remaining customers 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 supports 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 finance and these are through set amounts or as a percentage of sales. Many businesses will budget their controllable costs 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 money into the organisation and how much they have to spend on controllable expenses will be in direct relation to sales. With any upturn 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 income.
There are many other costs that fall into the payroll account such as worker’s compensation charges, National Insurance tax paid by the business and paid vacation time or other staff benefits determined by the employer. These need to be calculated into costs when recruiting staff into the business, unless you make extensive use of outsourcing services.
While you may think a budget is impossible to establish for a new business, it is vital to establish a healthy and sound financial footing on which success can be built for the future.
About the Author: Roger Davies, is the Manager at Advanta Productions Ltd and oversees the web developer team serving businesses in Nottingham, Derby, Loughborough and other areas in the Midlands. Advanta have successfully completed hundreds of website development projects. For website development enquires or to advertise your business on-line telephone 0845 22 55 805 or visit the website.