How To: Balance Your Budget
Keep your business running smoothly by learning hot to create and maintain a budget.
Millions of businesses fail each year. A common culprit: cash flow. If a business doesn’t generate the income it needs to stay afloat and the owner doesn’t employ proper money management strategies, collapse is sure to follow. Creating a budget provides an estimate of projected income and expenses, and is one of the most practical and effective tools small business owners can use to stay abreast of business health. For independent nail technicians who regularly deal with fluctuating income and expenses, maintaining a balanced budget is key to achieving success.
“When you’re an independent nail tech, you own your own business, which means you’re in charge of budgeting for the expenses required to operate it,” says nail artist and owner of Trendy Talons Adriana Gutierrez. “Having a budget will help your business run smoothly and efficiently, and will help you avoid getting into debt.” One thing Gutierrez had to learn the hard way was to keep track of her expenses and buy only what she needs; as a nascent business owner, that meant cutting back on her weakness, glitters and embellishments. “Since most of my clients were more conservative, a lot of my flashy nail art supplies would sit and collect dust,” she says. Her best tip: “Prioritize necessities first.” Read on to learn how to create a balanced budget for your business.
Estimate Your Projected Income
Effective budgeting starts with being able to predict your income. For many independent nail technicians, however, earnings can vary weekly. Therefore, it’s best to base your projection on historical data. What was your income last month? What was your average income over the past three months? Establishing this will give you a financial goal to work toward, and it will inspire the tasks required to meet or exceed it in the coming month.
Calculate Your Expenses
Next, determine your variable and fixed expenses. Variable expenses change from month to month. For independent nail technicians, they may include trade shows and events, continuing education and major equipment purchases. Fixed expenses, on the other hand, are stationary, meaning you pay them month in and month out. These expenses include rent, insurance and towel service, for example.
Your budget should also factor in taxes, your own salary and savings. Your tax burden is dependent on a host of factors and will likely include the payment of quarterly taxes. It’s important to diligently research your individual tax requirements to avoid potential penalties. Certified Public Accountant Bob MacKenzie, who specializes in working with self-employed individuals and small business owners, says that not paying the right amount in taxes can be one of the biggest budget blunders small business owners make. “Many small business owners don’t plan properly for taxes, and even more of them pay too much,” he says. “They’re unaware of the variety of tax savings and deductions available to them.” He recommends that small business owners hire a tax professional as soon as they start making a living. He also recommends that they work toward accumulating savings equivalent to six months’ worth of expenses.
It’s best to keep your salary consistent, regardless of any upswings in income; anything left after expenses and salary should remain in your business account or be transferred to a business savings account. “This extra money will be useful for unexpected future expenditures, such as equipment repairs, debt payment, bigger purchases or to supplement your slower weeks,” Gutierrez explains. “I also recommend setting aside a dedicated amount monthly for repairs and maintenance, especially if you’re using equipment that requires regular upkeep.”
Track What You Earn and Spend
Although not all business owners manage their budgets regularly, Jaime Schrabeck, PhD, owner of Precision Nails in Carmel, California, says budgeting doesn’t serve a purpose unless you continually track your income and expenses. “Tracking will always be more important than budgeting, especially at tax time,” she says. “The contrast would be goals versus realities. Budgeting involves projecting your income and expenses. Tracking means recording and categorizing what you actually earn and spend.” Schrabeck also advises independent nail technicians to research what things actually cost. “Don’t guess,” she says. “Understand that product costs (supplies) will vary according to the number of services performed.” She recommends that independent nail technicians include the following categories in their budgets:
• Outside Services
• Professional Memberships
• Retail Products
Schrabeck uses Quicken financial management software to track income and expenses, and recommends The Salon Service Pricing Toolkit developed by Tina Alberino, founder of This Ugly Beauty Business blog, for both tracking expenses and pricing services. Need additional budgeting support? From free budgeting templates and budgeting blogs to expansive software options and even DIY Microsoft Excel spreadsheets, there are budgeting tools available to fit every business’s needs.
Although creating a budget might seem daunting at first, the experience will help you become more confident running your business. Says Gutierrez, “Once you get the hang of managing your budget, you’ll ensure that you always have allocated funds to purchase the necessities.”
–by Manyesha Batist
[Image: Getty Image]