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Those dreaded irregular expenses can be a huge budget-breaker for small businesses if you don’t plan for them well in advance.
Some examples of these irregularities could include:
- Office maintenance repairs
- Vehicle maintenance bills
- Property taxes
- Motor insurance
- Building insurance
And a whole lot more depending on the kind of business your run. These expenses may only happen occasionally, but you must account for them when your budget is sorted out.
Unfortunately, you don’t have the luxury of forgetting about them when planning your monthly budget. Saving for these seasonal business expenses consistently is the best way to ensure you’re as well-prepared as possible if you need to fork out fees for unforeseen costs.
What Is A “Sinking Funds” Account
What is a sinking fund exactly? Well, it is money that you will be setting aside for either a planned or unplanned event. Unlike the rest of the capital, you’re setting aside for savings or fixed business expenses, this money will be set aside expressly for spending.
This is different from the emergency fund you’re setting up, too, since an emergency may or may not happen. With a sinking fund, you know one or more of your seasonal expenses are coming, and these are the funds set in place to cover those costs. Like Christmas, for example. You may want to spend for a company gathering or a company holiday when Christmas comes. We know when it is going to happen, so what you can do is have a plan set aside so you can save money and have some funds available to you during that month.
Let’s go with a basic example and say that you want to have $1000 set aside by the time Christmas comes. You should start figuring out as early as possible how much you should be saving each month so you can achieve that $1,000 target by December. If you plan to keep little by little each month and budget for this, you will not be scrambling when the time comes to try and organize the funds for your Christmas expenses.
A Plan for All Seasons
Regular expenses are much easier to budget since they happen monthly. It’s the irregular ones that often get overlooked or forgotten. Without proper planning, it is easy for these seasonal expenses to put a big dent in your company budget. If you happen to charge one of your irregular expenses to your credit card with no immediate plan to pay it back, remember the interest will accumulate with each month that it is carried forward.
The first and easiest solution to handle your seasonal expenses is to plan. Chances are, you already have some idea of what your seasonal costs are. Luckily, this seemingly big problem has a simple solution:
Keep tabs on receipts – A critical element in all kinds of financial management is keeping your paper trail- the amount you’ve spent, the amount you’re paid, what bills and receipts, what you bought, etc. Why is this important for tax filing? As an entrepreneur, you can take advantage of different kinds of special deductions, but all will be futile if you do not have your receipts. Some of these deductions include Automobile bonus depreciation deductions, a 100 percent deduction for oil and gas wells, and S-corp advantages.
Make Immediate Deposits – As soon as you get your monthly business revenue, the designated amount should be deposited into a different bank account without hesitation. A bank account to stash away extra funds for seasonal expenditure helps in cases of emergency. Never skip a payment, no matter how much you may be tempted because that seasonal expense still feels so far away. Oh no, you need to start putting money aside now and let it accumulate in time for the payment when it occurs.
Track the Ins and Outs – Tracking the transactions in your bank account. This helps you stay on top of your spending in case you overestimated or underestimated a specific category.
Take Advantage of Seasonal Incomes – Take advantage of any extra cash, commission, or bonuses and use that as an opportunity to add to your funds. Maybe you got an extra-large tax refund. Since this income was unexpected and probably not already included in your budget, you can take that money and set it aside for your irregular expenses.
Shave off your car expenses – If you use your card to travel to meet a client, go to a client’s site, consult on a client’s project, network, off-site meetings, etc., these are all the times you’ve used your car for work. The IRS has determined two types of deduction, which are i) the standard mileage rate and ii) the car’s actual expenses (gas, insurance, and servicing). Decide which helps you save more or, instead, which makes more financial sense before filling out your form.
Have A Strategy – Once you have a strategy in place, like a monthly budget, you can safeguard the rest of your savings that you worked so hard to set aside. Keep the emergency fund only for emergencies and your savings only for a rainy day. If you know at some point that you’ll have to handle a seasonal expense, then the intelligent thing is to have a strategy to prepare for it. That strategy could be as simple as being disciplined enough to stick to a budget or having a few tricks up your sleeve to see which areas of your life you can afford to cut back and save money.
Don’t Feel Bad About Using Your Funds – If you have to use your funds from this seasonal bank account, don’t feel bad about it. That is what those funds are there for- it helps keep your business in good financial health. You don’t need to feel bad about reaching into that sinking fund because you set it up, and it can be replenished in preparation for the next time they come up.
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