Did you know that budgeting can provide the basis for your business’s success? It is a foundation that you can use for planning and also day to day financial control and the glue that holds your decision making together.
Many business owners don’t think that they have time to spend on budgeting because it doesn’t seem to bring in money directly and we are all busy enough already that one more chore can be too much. Unfortunately you cannot create a reasonable action plan for your biz without a budget.
Successful biz owners invest their time up front with planning and budgeting because they understand the wide variety of benefits to organizing their financial picture before they jump into business operations. And the good news is that budgeting can be quite simple. It doesn’t have to be difficult or time consuming.
The most important thing when it comes to budgeting is to be realistic and gather as much information as you can in regards to income and expenses. Then allow flexibility that will account for unexpected market conditions and/or emergencies. Once you create your budget, monitor it and adjust as needed.
How To Get Started Creating A Business Budget
Questions to ask and things to consider before you get started
- When does your year start/end – on January 1st or another day
- What is your baseline? Last year’s sales, last months or anticipated sales based on goals?
- Monthly, Quarterly and/or Yearly – What is your timeframe
- How are you going to monitor this and what is your process for tracking, adjusting and using it to make decisions?
- What are the projected sales for this time period?
- Where is this coming from specifically?
- What are the direct costs of sales for this time period?
- How do these break down into categories
- ex: costs of materials, production, shipping, components or subcontractors to make the product or supply the service?
- What are the fixed costs or overheads for this time period.
- How do these break down in categories
- Ex: rent, utilities, taxes, fixed equipment costs, printing, postage, vehicle expenses, advertising and promotion, travel, entertaining clients, legal and professional services etc.
- What are ‘non essential expenses’ that you like to have but could live without
- How quickly can you cut them if you need to
- Ex. Corporate ‘meetings’ in vacation destinations, expensive phones, computers and office equipment, snacks in the breakroom, etc.
Creating and Communicating Your Budget
It’s key to work closely with the people you trust financially when it comes to budgeting. This might be your husband/wife, bookkeeper, CPA or assistant. This way you can have a consensus when it comes to forecasting and prioritizing. It’s also good to have someone review your numbers in case you overlook something.
Have regular meetings or communications with anyone who is helping you or is involved with your finances. This way you avoid unpleasant surprises or misunderstandings. You also have time to adjust if you find an error. It costs a lot less in the long run to get it correct up front.
Once You Have A Budget Make Your Budget Work For You
There are quite a few ways to make your budget actually make you money. Your budget is basically your financial action plan and can serve several useful functions.
- Budgets can indicate the costs and revenues associated with each of your products/offers and activities.
- You can then quickly and easily see which of your products/offers or services is the best selling, most profitable etc?
- Gives you and/or your management team a better idea of which decisions to make based on available resources.
- You spend less on interest and fees if you don’t finance purchases. Know what you want to buy ahead of time and save up for it or find the best rates.
- See in real time if you projections are accurate and adjust spending accordingly. You have identified the areas that are easy to cut back on and if you keep track you can do this quickly.
5 Top Benefits of a Business Budget
You Manage Your Money More Effectively
Your budget will show you where your money is coming in and going out of your biz. Knowing this ahead of time gives you focus for meeting financial goals and it also gives you motivation to avoid unnecessary or impulsive spending. You are much less likely to spend money you know you don’t have coming in.
Resource Allocation Is Easier
Planning ahead lets you look at where it is critical to spend money vs what you spend when you have extra. Know what your current situation is and then the conditions in which it makes sense to do more. Make sure to align your budget with your overall biz goals. This way you spend money on items that support the strategic objectives of your biz.
Analytics and Reporting Are Easier and More Effective
When you have a budget and a plan for using it to achieve biz goals then you know what numbers to look at and how they help and or hurt your biz. This saves a lot of time when you look at different metrics and financial reports.
It is truly amazing how many different numbers you can look at for a biz. Google analytics, Quickbooks, Facebook pixel and so many more sources of information can completely overwhelm your brain.
Your biz budget numbers are the ones you want to pay attention to. Know what these Key Performance Indicators (KPI’s) are for your biz.For example, if you run an online biz then you want to be familiar with the specific sales outlets you can get metrics from and how they are performing.
Identify Problems Before They Occur
If you monitor your budget regularly you can get ahead of potential problems or financial shortfalls. You are then able to adjust to changing conditions and stay on track overall.
Plan For The Future
A budget helps you set financial goals and then align them with your biz, personal and family goals. This way you can plan for what you have currently and then also be aware of what you want the future to look like. This planning makes it more likely you will stay focused on your goals and the action steps that will get you there.
Using a budget in my business has allowed me to balance my personal, family and biz finances. I know what I spend in each place and what the income is to support the expenses. I have a ‘wish list’ that includes a new computer but I won’t buy it until I have enough money saved up for a large purchase. I sleep better at night knowing that I am only spending what is necessary and helps support my overall goals.
Setting up a business budget doesn’t take that long and it will save you time and money for years to come, indefinitely if you stay on top of it.
Just in case you need a pre-made budget to get started you can find a copy of my family/biz budget here.