Many business owners have some expectation of what their expenses and revenues will be in coming months, but most have not taken the time to put together and use a real budget.
In order to better understand your business, and maintain good financial stability – a business owner should consider the following when developing their budget:
- Look to the past – The past gives a good indication of what your ongoing expenses are, both regular monthly and occasional quarterly or annual expenses. Make sure your expenses are categorized consistently and your finances are up to date, otherwise, you’re not looking at accurate information. Factor out any one-off expenses or things you don’t expect to have to purchase in the coming year.
- Look to the future – What are you going to do differently in the coming months? Do you expect sales to grow? If so, will there be any cost to make that happen or satisfy your orders? Do you want to hire? Plan that out. It’s great to dream big here – think of everything you could possibly want and then prioritize.
- Create a Spreadsheet – Microsoft Excel, Access, or any spreadsheet platforms will keep your business organized and well maintained. Use this to work up your budget (or email me to get my template sent to you). But once your budget is ‘final’ put it in your accounting system for easier tracking of budget to actuals.
- Expect the Unexpected – Stuff happens. You know it does. Add a little padding to areas where you’re likely to need or want it – Office expenses, Equipment, Marketing, or areas you determine.
- Looking to Cut Costs – Use the budgeting process to see where you’re spending too much money and come up with other options. Energy costs can be astronomical if employees don’t get into a habit of turning off computers when not in use, turning off lights where they aren’t needed, and so forth. Solar programs may be beneficial in the long run to save on energy costs – its environmentally friendly and tax cut incentives are also a plus Marketing costs can be a black hole if they’re not generating a return. Make sure your dollars are working for you!
- Be a Smart Shopper – By shopping around for different suppliers or services, you can find competitive rates for what your business needs to operate. Say you’re a commercial contractor – you’re likely to outsource the mason work for the building clients. Be sure to shop around for quotes on the labor, supplies, and other factors that may come into play with your business. But be careful – just because someone gives you a great price, doesn’t mean their work is quality.
- Review Your Business Periodically – Make sure you have a great bookkeeper who track daily expenses, profits, revenue and inventory, and then keep track of how you’re doing against your budget. Having an accountant can help with reporting, or a CFO for-hire (like me!) who can help with budgeting and other financial forecasting.