The aim of a business budget is to deliver value, not oppress you; successful entrepreneurs discard their preconceived notions and prejudices against budgeting and find treasures embedded in their budgets.
A few months into the new year – when planning has a sharper focus – is an ideal time to take that step toward success and learn to embrace your budget.
Here’s how: establishing a useful business budget begins with uncovering the right questions before deciding on the answers. With the books closed on last year – and final adjustments recorded and errors rectified – take a look at the results to assure yourself that your budget for the current year is based on reality rather than hope.
Ask yourself how some of the prior year’s expenses could have been avoided, and which ones should be modified so you can reach your goals.
And, most importantly, embrace these basic budget truths:
Many business owners who understand commonsense financial rules fail to create budgets for their companies. But when buying a house, they know the necessity of determining how much they can afford, and they consider their ability to pay for the home’s taxes, insurance, and utilities. When buying a new automobile, they carefully consider price and maintenance costs. Doesn’t deciding how to economically and efficiently spend business money demand the same diligent evaluation?
Having goals is different from establishing a budget. Without written financial guidance, great ideas remain unfulfilled possibilities. A budget gives you a formal plan for reaching your goals: you follow it to attain intended targets. Operating without a budget leaves you in the dark about your spending path.
How to budget
Following a budget by comparing predicted outcome to actual results permits you to see why you’re doing better or worse than planned, and where to make adjustments.
Cash-flow problems are real, and monitoring cash flow is the only way to efficiently manage these and survive disruptions. Compare your budget to actual numbers to uncover negative trends that you can reverse and positive trends you can exploit. If you under-budgeted certain expense categories and revenue isn’t on target, it makes sense to reduce spending in other areas. If revenue is rising faster than predicted, find what you’re doing differently than planned and budget for continued growth.
A good budget is accurate and realistic. That’s why it’s so important to make changes after the year has started (in other words, put your New Year’s resolution to learn more from your budget on hold until you’re a few months into the year). The final numbers from last year form a baseline for consistency with this year’s budget.
Also remember to fine-tune your budget seasonally. Examine your monthly financial data from prior years for patterns; businesses in most industries should have current-year budgets with fluctuations in monthly results. Identifying seasonal factors in budgets is crucial in determining the most appropriate way to focus your monthly spending.
As you can see, with practice and over time, you may make your budget your BFF.