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A negative cash flow is a reality for a lot of business owners, but that doesn't mean that you can't take steps to prevent it. By learning to budget your expenses, you can avoid expensive lines of credit and have the cash flow your company needs. One of the biggest adjustments in moving from a job working for someone else to managing your own company is the uneven manner in which you collect revenue. Since you can't count on an employer to deliver a regular paycheck, it is up to you to keep expenses low and profits high.

The following tips can help you do that:

  • Make a list of non-negotiable expenses: You need to know how much you normally spend in order to draft an accurate budget. To get started, gather bank statements and other financial records showing what you paid for business rent, taxes, insurance, payroll, utilities and other necessities. After figuring out a monthly average, multiply it by six and make sure that you have enough money in your budget to cover these expenses for at least six months. This will give you the time and financial freedom to get your business off to a good start.
  • Consider your discretionary expenses: Discretionary expenses include items that are helpful but not absolutely necessary to run your business. Decorations for your office are a good example of a discretionary expense. Make a decision not to spend any money on discretionary items until doing so wouldn't throw your budget out of balance.
  • Eliminate debt as quickly as possible: Unless you invest your entire life savings or receive a large inheritance, taking on some debt is necessary to start a business. However, you should make a plan to eliminate it as soon as possible to avoid paying interest and getting caught in a vicious cycle of making only minimum payments.
  • Save at least some of your company profits: It is undoubtedly exciting when your business starts turning a profit, but you must temper this excitement with reality. Determine that you will save a certain percentage of your profits and then stick to the plan. If you are a sole proprietor, only pay yourself what you need for living expenses from the profits and put the rest into a business savings account.

Be realistic with your initial cash flow projections: It is better to underestimate your initial earnings from your business than to overestimate them. Make sure that you spend sufficient time on market analysis to gain a better understanding of what you can expect in terms of sales and profits.

The bottom line is that you must create a budget that helps you keep your business expenses less than what you make in profits.

Be Sure to Update Your Budget Periodically

Just as you must update your business plan for it to remain relevant, it is important to analyze your business budget and make adjustments as needed. Financial experts recommend that small business owners review their budgets at least once per quarter, especially during the first few years of operation. Inexperienced business owners often make errors that can be costly if not caught and corrected as soon as possible. Budgeting for only three months at a time helps you to retain the flexibility you need to deal with seasonal sales variations. It also allows you to adjust initial income and expense figures that may have been inaccurate.

This article has been provided by 1st Commercial Credit .