How To Manage Fund Allocation In A Small Business

Allocating funds is serious business, for any business, small or big. Even when funds are in surplus, or they are in short supply, allocation of funds is a delicate and sensitive area since even a small miss or a slip in this area can lead to serious ramifications for your overall business health.

We all know that funds need to be distributed judiciously among the 3 Ms – Manpower, Materials and Marketing. As the CEO, you need to keep a balanced and neutral approach towards allocation of funds although you might be under pressure from all the departments for a larger share. For instance, the staff will ask for better compensation, production will ask for better technology and raw materials while marketing will ask for more investment in advertising and promotion.

As the captain of the ship, your vision and clear focus on your objectives and goals will help you decide how you want to spread out your funds. A CEO club or CEO association can prove to be a great help in giving you the right kind of advice about how to distribute your funds, since CEOs of small businesses typically face this challenge.

Decide your priorities

One big mistake many IT start ups did during the dotcom boom was to splash a lot of the funds they raised from venture capitalists on advertising and promoting their dotcom ventures. One must remember that spending on advertising comes only after you have your product/service firmly in place with a solid business model backing it and you know that it is tested and will work.  

Many IT start ups during the dotcom boom were started by entrepreneurs who had bright ideas and knowledge about their product but fell short when it came to drawing up a workable business model. As they went all out advertising their venture, they promised more than they could deliver, and later realized that the money they should have spent on consolidating their team, upgrading technology, improving the product and putting in place a revenue stream had been exhausted on promotion. What followed was the infamous dotcom bust that sank a good many number of promising ventures.

For any CEO or business owner, it is crucial to decide your priorities first.

·         Invest in building the necessary infrastructure and getting the right team in place.

·         Invest the funds essential for making the product/service absolutely ready for the market. 

·         Draw up a clear road map for revenue generation with specific and realistic targets and goals.

·         Identify and reach out to your potential dealer/retail network or customer circles.

After you have a good quality, marketable product in place, you can look at spending on promotion.

Keep reserves for urgent spending

Allocation of funds does not mean all expenditure. It also means saving.

Set aside a part of your funds for reserves, especially for urgent expenses and rainy days. Building reserves also helps you to keep a contingency plan in place. What if suddenly the expected payments don’t arrive? What if you need to hire some more people to deliver a rush order?

A comfortable reserve helps you pull through tough times and fund crunch situations without slipping into larger debts.

Spend on R&D

Small companies do not pay much attention to Research and Development, thinking that it is the fad of big companies. This is a myth. Some of the biggest innovations have come from small companies who have paid attention to developing innovative products.

If you can come up with a product that is a step ahead of competition and you are able to package it as an offer that appeals to the customer, you have a winner on your hands. Allocating funds for innovation proves to be a winning investment in the long run.

When it comes to financial planning, it always helps to take advice from experienced peers and other CEOs since they have also at some point been through these phases of growth. If you do not have the necessary budget to go in for executive business coaching or hire a leadership coach, you can always join a CEO club or CEO association to discuss your ideas and seek advice from peers. It helps.