Many microenterprises and solopreneurs believe they are too small to need a working budget.
Some start-up owners who are busy launching their operations think it’s a waste to spend time developing one.
And some small and medium-sized enterprise owners reason: “It’s just a shot in the dark, anyway.”
But no matter how small or entrepreneurial your business, you need to have a working budget.
A budget is a critical part of the initial planning stage, a crucial component of your business model and a vital tool for ongoing strategic planning.
A working budget can help an entrepreneur determine whether a new product or idea is financially viable.
It serves as a game plan for planning and timing the growth of a young business.
For an established business, a working budget is a way to monitor the firm’s financial condition and a key part of sound fiscal management.
The term “working budget” refers to the fact that the budget is a work in progress and that it will undergo modification and adjustment as time goes on.
You may need an accountant or financial professional to help you set up your budget initially, but it’s important that you be familiar with the numbers and thoroughly understand all the components of your budget.
If you are a new business owner or an entrepreneur with just an idea, you will need to do some research to come up with realistic budget numbers.
Look at similar businesses in your industry or sector and in your area.
This research will enable you to understand the market potential of your business and will help you in many other ways as you develop products, pricing, promotions and market presence.
Of course, if you are an established business owner, you can use your historical data to estimate future revenues and expenses.
Make sure that your numbers are reasonable or, better yet, on the conservative side.
And be sure that you add plenty of detail about items in your budget, including specific data relevant to your particular business.
The more detailed and thorough your budget is, the easier it will be to use it to secure funding from banks and lending institutions and support from investors.
From time to time, you will need to adjust your budget based on variances between the budgeted figures and your actual figures.
This is a good opportunity to evaluate your financial situation and tailor your business plan to help you reach your business and financial goals.
Maintaining a budget for your business on a regular basis will also help you track expenses, analyze your income and anticipate future financial needs.
Use your budget as a tool to improve and fine-tune your business – and to keep expenses in line.
By having and using a working budget you will be better able to make good decisions about your business and any new ventures you’re considering.