The Value in Budgeting

Everyone knows that if you budget your household money, you become a more responsible spender. The more carefully you track your income and expenditures, the more careful you are in spending choices. In the end, budgeting can allow your household to give more, save more, spend more on things you really want, and stay out of debt. While many people still do not carefully budget, these principles are time tested and generally accepted by the public.

The principal of budgeting applies, even more so, to a small business. Business owners must understand that budgeting is more that seeing if you have enough income to meet expenses this month. Its about carefully predicting, planning, choosing, and reviewing.

Predicting: This is the part where you look at your last years worth of expenses, broken down into categories, and predict what they will be for the coming year. If, for instance your electricity totaled $3,000 last year but you know they went up on rates by 10%, you should budget at least $3,300. More if you are growing. Predict expenses for every single category. If you have Quickbooks, they have built in budgeting features that can help speed this up. No matter what you do though, be sure to actually examine every category yourself and don’t just let a program do it automatically. You should know these details as a business owner.

Planning: Here is where you plan what sort of income you expect to get and in what months. Depending on the type of business you have, this may be an easy or difficult task. The more thorough you can be, however, the better off you will be when it comes time to review. Plug in jobs/sales you are sure you are getting as well as ones that are in the pipeline for the coming 12 months.

Choosing: Now you should have a total for both income and expenses. If it looks like money is left over, choose where to put it. If it looks like money is short, choose where to cut. Sounds simple, but it is a crucial step. You also need to begin to choose where to put your time and energy in the coming months. Which sales will you focus on closing? What will help your business finances the most? What kind of return are you getting on marketing money?

Reviewing: Each month and each quarter, review how close you were to budget. If necessary, make adjustments by adding or cutting expenses and income on next month/quarter’s budget. If you don’t regularly review your business finances, your previous time spent will be wasted.

If you are able to stay on top of your business finances, it will work just like a home budget. You will end up with more money to spend on things that really matter to your business, you will end up with much better cash flow, and you will be considerably more relaxed. Carve out some time this weekend to set up your budget, then set an ongoing monthly appointment with yourself (and other owners in your company) for review and updates.