If youandlsquo;re alive and breathing, you are hearing plenty about the federal budget right now. And deficits. And state budgets. And more deficits.
Even the optimistic optimists would agree it’s not a good situation.
I’m constantly surprised at how few business owners actually prepare a budget. Maybe we only associate the word with bad news, and then avoid it.
But don’t let all that dreary deficit talk turn you off to the entire subject of budgeting. Avoiding a budget for your business can get you into the kind of trouble our state and federal governments are in. In the business world, deficits are called “losing money!”
Not good.
Check out these eleven simple tips to get you in the mood:
- Your budget is your friend (really!). The purpose of a budget is to guide you to spending your money intentionally. Done right, it will help you see where you might be overspending and under-spending.
- Put your money where your goals are. Your budget should reflect allocating resources in areas that will lead to your goals. It’s not just a replication of how you spent money last year.
- Don’t overcomplicate it. Keep it simple so that the people who use it can understand it.
- Your budget is a living document (like your strategic plan!). It’s not going to do you any good if you never look at it and compare actual income & expense to what you planned. Track your performance monthly and see where you need to adjust.
- It’s not etched in stone. It’s numbers in a spreadsheet, and can be changed. If you see trends as you go through the year, you can modify your budget. (For example, right now gas prices are rising. How will your budget need to be adjusted?)
- Select your method. A top-down approach means you use last year’s numbers and increase or decrease as your goals and plans dictate. Or you can apply a certain percentage increase or decrease if the specific line items from last year reflect your current strategy. With a zero-based approach you start from zero and add on what you will need for the coming year. If your business model or strategy has changed significantly, this is the method to use.
- Plan A and Plan B. As we’ve all seen, the economy can be unpredictable. Be prepared and have a budget that reflects less than optimal conditions, along with a more optimistic forecast.
- Garbage in, garbage out. Your budget is only as good as the data you entered into it. Good recordkeeping and accurate bookkeeping are essential. It’s time to get organized and keep good financial files. If you need help setting up a system, it’s worth every penny to have a professional bookkeeper or CPA help you get it set up.
- Do a cash flow budget. The first rule of business is: Never run out of cash! A cash flow projection details the amount of cash you collect and pay out. For young businesses, plan on doing a rolling sixteen week projection. In this budget, you track your anticipated sales and income from other sources and contrast those numbers against how much you expect to pay in labor, supplies, and other expenses.
- Plan your capital budget. The capital budget helps you figure out how much money you need to put in place new equipment or procedures to launch new products or increase production or services. This budget estimates the value of capital purchases you need for your business to grow and increase revenues.
- Inc Magazine offers a variety of tools and templates (some free, some paid) to help with budgeting, sales forecasting, and cash flow projection. Go to: http://bit.ly/g2JTMs
Now you’re ready!
Carve out a couple of hours to yourself and start by exporting your previous year’s income and expense statement to an Excel spreadsheet. Work with the numbers in Excel and when your budget is ready (no deficits!) plug the line item totals into your financial software.
Voila! You’ll have a budget! Remember, it’s just adding and subtracting. Don’t make it harder than it is.
andcopy; Darcie Harris 2011