Learning how to build a workable budget is so frustrating that most business owners skip the process completely.
But hoping the numbers will work out is certain to cause greater frustration and possibly failure.
There’s an effort required to set goals in a budget. However, the process is much easier when following some basic guidelines and deploying the right mind-set.
A budget is the most effective way to control and sustain growth. Budgeting permits you to meet sales and profit targets by investing company resources along a corresponding timeline. After all, sales can be achieved only with preceding outlays for marketing, equipment, staff and material inputs.
Budgeting is the first step to controlling business profit instead of merely responding to urgent surprises.
To become a successful budgeter, start by carefully studying the costs you must incur to produce your projected sales. Add to your forecast the length of time between incurring the costs and generating the sales revenue.
This is the essence of a budget. A business has to possess sufficient resources up front in order to meet a sales goal. After you set a budget for profit, another budget is easily devised for cash flow.
Don’t neglect to create the cash flow target. It is based upon when payment is due for the costs you incur and when you will collect revenue generated.
Forecasting the future is difficult, but your accuracy improves with practice.
Implement budgets for specific projects or just the next couple of calendar quarters. Then compare actual results to the budget. Revise the forecast based upon what you learned.
Practice will soon make your budgets accurate and reliable. You’ll discover what deliverable dates are realistic based upon your resources.
Your next budget will then help you plan for completing projects on time while maintaining your other business functions.
Make sure to include others in your budget preparation. This means receiving input from your management team, if you have one. When you are the only manager, find an outside source of advice. Your accountant or banker can review budget details. Or if you create only a rough estimate, an accountant or banker can recommend someone to help you complete the budgeting process.
Don’t budget too precisely. Exact budgeting to a specific amount is not the objective. Instead, a budget is about providing you with direction. It’s a compass that helps you chart the right course of action. A budget is supposed to simplify business decisions, not drive you crazy with small details.
Frequently compare how you’re doing to your budget. Find out why any variance is occurring and what improvements you can make to have better results. You’ll find that trade-offs are necessary. After all, business resources are finite. When an unexpected expenditure arises, find something in the budget to cut. This discipline prevents you from overspending. There are always plenty of tempting purchases. Focus on the ones that maximize profit.
In the end, your business budget provides you with sustainable profit and comforting control over management of your business.