Moving into a new calendar year is the perfect time to incorporate better methods for managing your business. One of the first steps towards improvement in 2022 is putting key bookkeeping practices in place for your business to help set your books up for success. Starting with the basics of your budget can provide you with an important framework that often gets overlooked in the fast-paced changes of keeping up with a new year.
The following tips and best practices will help you to maintain control over your budget (and the growth of your business) even when unexpected difficulties in the market arise.
Cost of Labor Increasing
At the start of a new year, you should always err on the side of caution by planning for the cost of labor to rise. Within many verticals, prices in the current market may dictate that employees can receive higher compensation than in the past. While salaried employees may not require additional compensation, it is a generally good rule of thumb to anticipate new hires costing more than the previous year. This should always be factored into your budgeting, especially since the cost of employees, in general, is higher in 2022.
One way to mitigate the impacts of rising labor costs is to offer more competitive salaries to attract top talent. To do this, you must determine what fair compensation looks like in the region where you are hiring. Many industries have seen an influx in the competition to hire quality job candidates who were looking to make changes during the pandemic.
If saving costs on labor is a concern for your company, consider hiring for remote positions, and targeting talent from less expensive regions where the cost of living is lower. You could allocate a portion of your current labor expense budget to finding the best talent in a remote location. Offering a higher than average salary in that region could afford you higher-skilled talent than from your home region. This strategy will help you to remain competitive with other major players in your industry.
Raise Your Prices
With a lot of uncertainty still present in the marketplace due to the pandemic, SMBs need to be prepared to raise prices. Inflation is a real possibility that will affect small businesses. As a business owner, you will have to make a decision on whether or not a price increase makes sense in your situation. It may be necessary to increase your prices to absorb some of the rising costs in areas such as labor, materials, and distribution in order to have a healthy budget in 2022.
If you haven’t already implemented these types of adjustments, the end of Q1 is a good time to evaluate and make changes. Just make sure that you take into account the tolerance level for your customers before increasing prices. With the challenges of the pandemic, many consumers and companies in the B2B space, have been well primed to expect rising costs, so don’t worry if your company needs to make some necessary adjustments moving forward.
Planning for the Unexpected
With a fresh calendar in front of you, now is the time to start budgeting for an emergency fund to plan for the unexpected. It is always easier to plan for this type of big-picture strategy at the beginning of the year than it is to course correct midway through. Make sure that you are padding your budget with additional expenses and covered inline items if you have overages.
If your budget has additional waste that can be trimmed, consider adopting a zero-base budget approach rather than a historical-based budget. A zero-based budget will allow you to take a critical look at where your spending categories may be incurring expenses that aren’t relevant, helping you to make better budgeting decisions in 2022.
Tentho Can Help with Bookkeeping for Your Business
Tentho’s team of accounting and finance experts specialize in helping clients manage their bookkeeping and create successful business budgets for every stage of growth. Tentho can work with you to create a custom budget solution that fits your unique business needs. Tentho’s team of talented experts can help your business to take advantage of proven accounting methods that can help you to prepare for the future.
If you are ready for a talented team of accountants to help you create a winning business budget in 2022, book a consultation to get started.