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How to Budget with Increasing Product Costs

Businesses everywhere are feeling the impact of increasing product costs. As the costs of necessities reach new heights, it’s more important than ever for small business owners to create a budget and stick to it. Focusing on cash flow has always been important for small businesses, but it’s now essential with consumer goods at unstable costs nationwide. Here are a few things you can do to ensure your budget can cover you in the case of an emergency.

Budgeting For Small Businesses During Periods of Inflation

Make a Plan with Goals Before you Budget

This may sound obvious, but many businesses skip this part once they’ve gotten the practice of budget creation down. Set your overall business goals before crunching the numbers on your budget. No matter what your specific goals are, they’ll help you quantify your budget.

Use Historical Data to Predict Sales

Forecasting sales is the bane of account managers but using historical data can get you pretty close to the actual result. If you’ve had steady growth of 20% per year over the last several years, setting an additional 20% over the next year would be appropriate. A stretch goal of 25% would be aggressive, but it’s a data-backed destination for your team to strive for.

Observing the peaks and troughs in historical sales will yield further information regarding when to push sales and when to hold. All this information will improve the accuracy of your budget creation.

Consider Uncontrollable Factors

Not everything can be planned for, but evaluating how external factors could impact your budget will ensure a worst-case scenario is avoided. An upcoming recession, the above-mentioned inflation, or a resurgence of the pandemic are all factors to consider. How could these affect your budget? Will an additional increase in inflation push the cost of gas to a point you hadn’t previously considered? What would you do in that circumstance? These are the kinds of questions that need to be asked. Thinking of the worst-case scenarios will ensure you see them coming before they hit you.

Taking the proper time to prepare your budget will protect your small business from the threat of inflation. If you need help maintaining your budget or a little help getting by, contact the banking experts at Falcon National Bank. As partners, we can help you analyze your financials and provide resources to better position and optimize your business financial health.