A Budgeting Primer for Business Growth

Pace yourself as you plan for success

Business is booming. Customers are raving to their friends left and right about your company, and it seems as though it might be time to grow. But how do you do it? Experts say a lot of this depends on the industry you’re working in, but they all agree that the most important thing is to know your business — inside and out.

Know Your Market

The most important first step is to make sure you’re an industry expert. According to Sherwood Brown, business services manager for Tallahassee-based First Commerce Credit Union, being well versed in market conditions will let you know how much room your industry provides for growth from the start.

“You’ve got to be around and just kind of feel what’s going on,” Brown advises. “From a global standpoint, you want to be really briefed. Look at the trade journals and see what’s coming down the pipe. And pay attention to your very own trends.”

National trends are not the only thing you should be tracking. Local industry news can give you a more incisive look about how the national tides apply to where you live, and where the exceptions are. (Ahem … you also might want to check out some of 850’s county-specific business journals.)

If you don’t know what conditions are like outside your individual business, you’re budgeting blind and could easily find yourself high and dry. Are you in a growth industry, or is the market contracting? Is the local economy just begging for more businesses like yours? Are your competitors expanding, or closing? These are the types of questions you should be able to answer easily before you move forward.

Know Your Business and Budget Accordingly

Once you’re an industry whiz, it’s time to pat yourself on the back and get down and dirty with your statements and balance sheets. To know your own trends as Brown advises, you should be intimately acquainted with your revenue stream and expenses, and this means knowing more than simply where your money comes from and where it goes (although that is the place to start). You also need to pay attention to how often the money comes in and out, and in what volumes. Look for trends. Make a note of where cuts could be made, or funds gathered, in case of a rough patch. Contingency plans for worst-case scenarios can save you from stress down the road.

The key to avoiding growing pains is to know how much you can set aside without any change in the quality of your service. And money isn’t the only resource to consider: Manpower, time and any other resources your business uses are all parts of the budget. Make sure you have not only enough resources but the capacity to manage them all. And don’t forget, your own invested effort needs to be taken into account.

“You only have so much energy,” says Sammie Dixon, president and CEO of Prime Meridian Bank in Tallahassee. “Are you optimizing your time in order to obtain the growth that you feel you need? That is a resource: your time and your energy. Do you have the capital to cover it? The fastest way to go out of business is hyper-growth.”

Growing too fast can strain resources and cause a drop in quality for the goods or services you’re providing. Once you have a good sense of where your industry is going, and how much your business can comfortably grow, it’s time to hatch your game plan for success. The important thing to remember when writing a budget is to be realistic and have a cushion for any unforeseen problems. Hope for the best, but plan for the worst. And make sure whatever growth you’re planning won’t exceed your liquidity and your ability to keep things running smoothly — from resources to staffing to management.

“Start with the money,” advises Emory Mayfield, Hancock Bank senior vice president and Tallahassee market president. “Determine what your budget is for the year. Then determine how much staff you need to make growth happen and how much time it will take from everyone to get there. In my opinion, the key is to make sure that your daily activities reflect these priorities. For example, if 80 percent of your revenue comes from product X, then 80 percent of your attention, time and staff should be focused on product X.”

Make sure you’re investing in the right things — anything that will help you grow. Dixon emphasizes differentiating between necessary expenses and luxury items. If it’s not directly necessary, an investment might be a better idea later on when there’s more stability.

Once the wheels are in motion and you see the budget in action, the key is to pay close attention and remember that a budget is just one tool — a flexible one. Dixon reminds business owners that “a budget, to some extent, ebbs and flows. You’ve got to be willing to change course when it makes sense.” Stay attuned to how things are going. If your services start to strain, Brown and Dixon warn that your business could be growing too fast, and it might be time to rein things in. Know how much money you should be making, as well as how much you’re actually making. If the two differ, find out why and address it. And if your services have suffered, get ahead of the problem as quickly as possible.

“Learn from the mistakes, look at where you can improve, apologize if you have to to your customers — whatever you have to do to right the ship,” Brown says. “Because it’s always better to correct it up front than to let it get down the road, and then you’re suffering a loss trying to go back and recoup.”

Bonus Tips for Budgeting Success

Always have cash on hand. Make sure you always have liquidity, both for security and to seize on opportunities that arise.

Think of that building you want three years from now, today. The income shown on your taxes today will determine if you qualify for a loan a year or two down the line. So pay attention to how you’re handling your taxes, with special attention toward what it will mean for your long-term goals.

Diversify your revenue stream. This is another measure to provide your business some security. It’ll also make you a safer, more appealing bet for banks.

Anticipate your competition’s reaction to your growth. A lot of companies take for granted that the competition will just rest on their laurels, but this is not the case. If you’re expanding, your competitors will take notice and react. Be ready.