Create a business budget

Here are the actions to take to create a business budget.

  1. Review your income and expenses. Study past records, such as banking and credit card statements and tax returns.  Then list all of your expected expenses for 3-6 months, or the entire year if your business is seasonal.
  2. Divide expenses into categories such as debt, employees, and overhead. Look for spending patterns in each category. Also, remember to save money for emergencies and economic downturns.
  3. Project income and expenses for a future period based on past figures and trends, and any changes that you foresee. Regularly review your projections and adjust them if conditions change.
  4. Be disciplined; stick to your plan. Share your budget with advisors and your accountant to get their support. Be aware that sharing sales or salary projections with staff may create expectations.

Note: Studying your finances and objectives for the year, then creating and following an annual budget will help you make better-informed decisions to achieve your business goals.

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The consequences of a smaller company spending too much are far greater than for larger companies. If you own a small business it’s especially important to control expenses.  Here are some tips for taking an organized, logical approach to managing your expenses:

Categorize your expenses as short-term, long-term or fixed.  What’s the difference between the three?

  • Short-term items are things like wages for part-time and seasonal workers, because these may change within a six-month period.
  • Long-term expenses are items such as leases and contracts with vendors, which may last up to a year.
  • Fixed costs, such as mortgage payments, rarely change.

After categorizing your expenses, rank them in descending order of cost within each group.  This process will help you see more clearly where your money is going.

Create a schedule to review the items in each expense category. Look at your short-term expenses more frequently than your long-term costs because you can make changes to these more easily.  If you are successful cutting costs in one area, see if you can transfer your strategy to another area of your business.

Establish goals for reducing each expense category by a manageable percentage.  If you have employees, assign someone to meet each cost-cutting goal, or consider rewarding employees for finding ways to cut costs.


Your business needs a steady flow of cash in order to operate smoothly. Here are some tips for managing and maximizing your cash flow

  • Lower your overhead – Look for ways to lower your overhead. Shop for better pricing on what you buy. Cut back on non-essentials.
  • Work with reliable vendors – Work with reliable vendors that deliver quality merchandise on time. If a shipment is late or of poor quality, you miss opportunities to sell your inventory and bring in cash.
  • Lower prices selectively – Make the hard decision, when necessary, to lower prices when items don’t sell. You’ll be able to recover your cash and put it into products that will sell more quickly.
  • Improve your cash tracking – Create a monthly cash flow chart, showing when you expect cash to come in and go out. This will help you anticipate possible cash shortages. Streamline your bill collection process so that you get paid more quickly whenever possible. That way, you’ll have your own cash to work with, rather than paying interest on borrowed money. Double-check your bookkeeping to avoid fraud and overpayments.
  • Invoice and collect promptly – Invoice and collect promptly from your customers. Consider having a 14-day payment cycle rather than a 30-day payment cycle. Along with having a shorter payment cycle, be sure that your invoices permit you to charge interest for late payments. Be careful to track accounts for prompt payment. When you extend credit, you lose access to cash and the interest it may generate if invested. Follow past-due accounts closely. The more overdue an invoice is, the less likely you are to collect it.

follow wage laws

Various wage laws exist to protect workers. The Fair Labor Standards Act (FLSA) sets federal minimum wage and overtime pay standards. The government also has rules regarding employee breaks, on-call duty, and travel. However, it does not require compensation for holidays, vacations, sick days, or severance. Your state wage laws may differ. 

The following chart describes the basics of the FLSA, according to the U.S. Department of Labor’s Wage and Hour Division.  For more information, visit the Wage and Hour Division on the U.S. Department of Labor’s Web site:

The federal minimum wage is $7.25 per hour. Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.

Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek (any fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods) at a rate not less than one and one-half times the regular rate of pay. There is no limit on the number of hours employees 16 years or older may work in any workweek. The FLSA does not require overtime pay for work on weekends, holidays, or regular days of rest, unless overtime is worked on such days.

Hours worked ordinarily include all the time during which an employee is required to be on the employer’s premises, on duty, or at a prescribed workplace.

Employers must display an official poster outlining the requirements of the FLSA. Employers must also keep employee time and pay records.

These provisions are designed to protect the educational opportunities of minors and prohibit their employment in jobs and under conditions detrimental to their health or well-being.

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tips for compensating yourself

As a small business owner, there are many options for taking money out of your business to pay yourself. Individually and in combination these different methods may offer you some real advantages in terms of tax-savings and liquidity (having assets that can be readily converted into cash).

Deferred compensation (when a portion of your income is paid out at a date after the income was earned) may postpone your payment of taxes on that income. Income shifting (transferring some of your earnings to other family members to reduce your taxes), may also have financial benefits related to your estate, the wealth you’ll pass on to your family when you die.

Compensate yourself wisely.
Explore these options and advantages with your tax advisor.

  • Salary
  • Paid expenses
  • Bonus
  • Dividend
  • Benefits
  • Rental income
  • Retirement plan
  • Deferred compensation
  • Life insurance
  • Income shifting

Note: Consult with your tax advisor and perhaps a business attorney to determine the most advantageous and cost-effective ways to compensate yourself.