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Biggest Budgeting Tips for New Entrepreneurs

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There are several variables that you need to account for when running a business. Too many entrepreneurs make a mistake of thinking that their success is going to be determined by the quality of their product or service. Unfortunately, even a company that produces the greatest product in the world can go bankrupt if they make other mistakes.

I have previously written about marketing mistakes that hurt business owners. However, there are other problems, as well. According to one study by US Bank, 82% of all business failures are attributed to poor cash flow management. Most of these problems could be solved by improving budgeting.

As a new business owner, it is important to budget appropriately. The good news is that there are a number of things that you can do to achieve this. Here are some budgeting tips that every business owner should take into consideration. It is a good idea to have a budget calculator for all of your employees with purchasing authority, because they all need to be on the same page.

Have a cash reserve for fixed, essential expenses

There are two types of costs that you are going to incur while running a business. The first type of cost is your fixed expenses. The second type of cost is the acquisition of new capital.

The first includes things like rent, payroll and utilities. It is essential that you always have enough money in the bank to cover these costs. You can’t tell your employees to wait an extra couple of weeks for their paycheck because you don’t have the money in the bank. It doesn’t matter whether or not you have a $1 million check on its way.

You need to always budget for these costs as a priority. Purchasing new capital to expand your business is important, but it has to be secondary to covering your essential expenses.

Prioritize investing in projects that have proven to have a high ROI

Every business is going to monetize differently. However, most of them have something in common. They offer multiple products and serve multiple types of customers.

While you are running your business, you are going to discover that some products and marketing segments are more profitable than others.

You are going to need to identify those groups that have the highest ROI. You will need to allocate more of your budget to reaching them.

This is a lesson that drop shipping companies have discovered firsthand. They might sell hundreds of products but discover that only five of them are in high demand. They could spend tens or hundreds of thousands of dollars on Google Adwords advertising to test every product in their funnel. Wouldn’t it make more sense to allocate more of your budget to promoting a product you have already discovered were profitable?

Don’t budget to expand into new markets or regions before you are ready

Growing too quickly is one of the biggest causes of failure. Many businesses, unfortunately, get too overly confident with their success. They start pursuing customers in new regions or demographics. The problem is that they might be increasing their revenue, but they are also increasing their expenses at a faster rate. They might not be able to discover that some of their target customer groups or markets are unprofitable until they have already exhausted their entire company budget.

Don’t be discouraged if your business is growing slowly. It is better to accumulate revenue and build up your cash reserve first. You will expand later once you have enough money in the bank.

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