Proper financial planning is the foundation without which a company won’t survive for long. But how do you make sure that there is enough money for both development and marketing?
Budgeting
Who should distribute the budget depends on the scale of the company. In small companies, like a local grocery store, it’s done by the owner; in bigger businesses, like the TonyBet WebSite, it’s done by the same person together with the financial head; in large ones, like Netflix, together with the heads of departments.
The main rule: 10% of the marketing budget must be allocated for testing of new hypotheses. This is enough to find at least one working hypothesis. If the figures are good, the hypothesis moves to the budget section – i.e. to the basic 90%. And they start testing something else.
In fact, 10% is the minimum figure for testing. You can budget more, but the main thing is not less. The size of the budget for hypothesis testing depends on the situation.
Financial planning is the foundation for both marketing and the entire business. It helps:
- See a plan: how much we want to spend and get, what results to achieve.
- Hit the target more accurately: the better we calculate, the better we hit the target.
You need to plan your budget when profits are going up, and even more so when they are going down or staying down for a long time. This will help you survive troubled times with minimal losses and grow into a successful, stable company.
When the Budget Grows
The company is successful, the budget grows, and free money appears. Where to invest it depends on the “bottleneck” in the company. There is always a department that cannot cope. For example, you needed to hire 25 people, but found only 5. Then you should increase the HR budget. In this case, there is no point in putting this money into marketing – sales will grow, but there will be nobody to deal with it.
Sometimes companies forget about budget planning when profits skyrocket. It seems that they can relax and it will be like that forever. But every time there comes a time when you need to strengthen marketing or find new employees. If you miss it, being in euphoria from success, you can lose the company.
Once you’re in a state of abundance, the first thing to do is start saving money. Companies that don’t budget usually don’t last long because they spend money too aggressively.
When the Budget Doesn’t Grow
There are times when the budget goes somewhere. If there is no catastrophe, but money is leaking out, the first things to check are services and subscriptions. It often happens that they were once used, then stopped, and forgot to disable them.
Sometimes holes in the budget are created by unproductive employees. They can be good people, and even bring some results, but their usefulness for the company isn’t enough. Employee performance should be monitored by managers. If it’s impossible to stimulate and increase productivity, it’s necessary to look for a replacement.
Another problem with the budget is the cash gap. This is a situation where there are expenditures, such as paying rent for the premises or giving salaries to employees – and the money has not yet been earned.
Here’s how to avoid cash gaps:
- Start a payment calendar – a document that will spell out income and expenses. Expenses: mandatory recurring payments – office rent, employee salaries, and others. Next to that indicate the dates when they have to be paid. Expenses: dates when clients usually pay or until when they have to pay.
- Analyze – see in which week the money may stop being available.
- Solve the problem – if you see a cash gap, you can act in two ways: shift the mandatory payments or ask customers to pay earlier.
What to Do About Seasonality
Construction, repair, and tourism are areas for which seasonality is important. To make sure it doesn’t lead to holes in the budget and cash gaps, build a system:
- Figure out how seasonality affects money – sometimes there’s a lot of money in season and no profit because of consumables or paying debts for “off season.”
- Fix the period of high season – usually from March to September, but it depends on the area.
- Calculate mandatory expenses – if for some reason, it’s still not done.
- Create a system of funds – during the season, set aside some money for the “off season”. Calculate how much to set aside, considering all mandatory expenses and possible contingencies.
Set aside money for marketing, too. This way the company can get enough bids for a normal season, and it won’t be forgotten about.
What You Can’t Skimp on
There are things you should always find money for in the budget.
Three things you shouldn’t save money on:
- Marketing – profits have nowhere to go if no one knows about the company.
- Product – every business measures product quality differently, but it’s everywhere.
- Financial services – it depends on the financial directors and accounting department whether the money doesn’t leak out of the company unnoticed and whether there are no questions from the tax authorities and the state.
The rest depends on the business model. If profit is based on people, you cannot save on labor, i.e. salaries and the level of specialists. If goods or production – on stocks, productivity, equipment. But it’s better not to save money at all, but look for ways to increase profits. And without a well-planned budget and aligned marketing, this is hardly possible.
