One timeless reality is that there is never enough money available to spend on what you need or want. Therefore you must rank budget items and spend money on the top-ranked ones first.
How should you rank your wish list? Everyone has a different set of business needs and values, so there is no simple answer. However, here are some criteria to help guide you in setting priorities. Specifically, you should ask how critical a budget item is:
- To the survival of the business
- To attracting and motivating the best employees
- To designing and building products that will win and keep customers
- To expanding your business to new geographies
You should score--from best to worst--each budget item on each of the criteria you choose, and add up the scores and rank the items.
Here are five things that might be at the top of your list.
The most important budget item for your business is likely to be paying your people. That's why it's a cliché that startup CEOs are most often kept up at night by worries about having enough money to meet payroll.
There is an important corollary to the importance of budgeting enough money to meet payroll: In small companies, every person on your team must be adding value. You do not want to compound your worries about meeting payroll with the even bigger concern that a small number of your people are not only expecting to get paid but are doing so even as they disrupt your company's operations and reduce your productivity. So make sure you budget some extra time when you're thinking about payroll to consider whether you have to make the hard decision to part ways with some of these energy-subtracting employees.
2. Rent and utilities
If your office rents space, you could find yourself in trouble if you don't pay your rent and utilities on time. There's nothing quite like the feeling of missing those payments and wondering how long it will be before you have tell your employees that they can't come back to the office because you've been evicted. So make sure you have enough in your bank account to make these payments on time.
And if you think you might be able to save money by having everyone work at home and hold meetings at your local Starbucks, you better let your landlord know of your plans ahead of time and be prepared to figure out how you can break the lease without burning through your remaining capital.
3. Accounting and legal fees
Professional services providers can help save you money and give you advice that leads to better business decisions. Unless you are an accountant or a lawyer, you will need to hire them to help with taxes, raising capital, and reviewing or creating contracts and other legal documents. To be sure, there are some accountants and lawyers who are flexible in the form of payment they will accept from a small company. For example, many lawyers in Boston and Silicon Valley are willing to defer payment of their cash fees until your company raises a substantial round of capital. Some may offer you discounted cash fees in exchange for equity in your company.
However, these options can come at a price that you may not be willing to pay. Therefore, you should make sure you budget enough cash to pay your accountants and lawyers their standard cash fees when they are due.
4. Supplier payments
If your business makes a physical product, you probably buy raw materials from suppliers, and if you sell a service you might have contracts with coders who are developing your apps. Some suppliers are willing to help finance your business by letting you delay payments--they might wait 60 days instead of 30, or they might give you a discount on your invoice if you pay early.
You might also consider whether you can find new suppliers who will provide better quality, more reliable delivery and service, and lower prices. What's more, you could see if you can partner with other small businesses to create a joint purchasing pool that helps you negotiate volume discounts.
But whatever terms you ultimately arrive at with your suppliers, you must also make sure to pay them in full on time.
5. Marketing expenses
If you still have money left over after you've made all these payments, the next most important item on your list may be marketing.
The question to ask yourself is whether you are getting the highest possible payoff from the way you are spending your marketing money. If you spend money on what I would call open-loop media--things like TV or newspaper advertising, where you can't tell whether it is bringing in new customers--you might wish to reallocate your budget to closed-loop media--such as online or mobile advertising--which will enable you to track whether the ad resulted in a customer purchase.
Another thing you could consider is trying to turn your existing customers into evangelists for your company. To do that, you could measure your company's net promoter score--the likelihood that your customers will recommend your company enthusiastically to others--and give out bonuses to your employees as your score rises.
However you spend your marketing money, make sure you pay your bills on time--after all, your company's growth could depend on it.