By Kayla Matthews
Striking out with your first startup? Been in business for a few years but still stumped by budgeting? You’re not alone. Budgeting doesn’t come naturally to many business owners, but you can develop the skills needed to create and manage your business budget.
Many scenarios require a business budget to ensure company success and direction. Matching business expenses, both anticipated and real, to revenue helps you determine if you possess enough money to put into operations, expansion and income generation, among other needs. New startups should research their market to replace a history of financial reporting while being realistic about their goals and ambitions. Businesses will use their budget to direct company growth toward income, profit and spending over the future months and years.
Without a budget plan in place, businesses risk going into debt or not spending enough of their financial resources to grow a business to compete in the market.
Starting and Maintaining Your Business Budget
Think of your company budget as a roadmap for your business. A business plan outlines directions and goals, but your budget also informs the end goals of your company. Here are five ways to create and control your business budget:
1. Make a List and Check It Twice
Base your budget off of realistic profit you desire to produce in the coming year. Don’t fret over accuracy too much because budgets focus on realistic forecasts and forward-thinking. Start with a list and build your budget from there.
Pull out your most recent business financial statements. Look at the current profit brought in since it drives other estimates for capital expenditures, expenses and costs. Consider outside factors such as the loss of a major client or a downturn in the economy in your estimates. Don’t forget your operating costs: rent, utilities, research, insurance, taxes and travel. As you would in a personal budget, create an emergency business fund or plan to seek out a loan should the need arise.
2. Don’t Be Afraid to Shop Around
Staying on top of your long-term success means continually looking for what’s best for your company and its budget. Why waste money on suppliers that deliver little but issue a hefty invoice every month? Why continue to use lead generation tools that fail to produce results?
Don’t be afraid to shop around for the tools, suppliers and services that best accommodate your company and its success. You may even consider seeking outside capital to grow your business in order to expand your resources using external finances. No matter where you invest, it’s important you get the most out of your money without wasting it.
3. Make a Budget Spreadsheet
Spreadsheets feel intimidating but remain the classic business budget tool for a reason. When opening or operating a business, use a spreadsheet to calculate estimates regarding revenue percentage and total amounts you’ll need to direct to raw materials and other resources. Do the same with your taxes, insurance and operating costs, for example.
Templates will help you plug in the right information to make conservative estimates, and you should pull out your budget spreadsheet every month for review. You’ll track business outcomes against the estimates as you move along in the following months to monitor whether your business is profitable and achieving goals.
4. Show Restraint, Not Rigidity
It’s better to go under budget than over budget in most opinions. Conduct restraint in your budget over rigidity. Going too under repeatedly sets up your business for stagnancy. Invest in new technology or other resources that will help grow your business.
When you go over budget, review areas to cut costs. Focus reduction strategies first on analyzing profit margins on services and products offered. Direct investments primarily in your most profitable services and products. You don’t need to cut positions needlessly, either. Implement a telecommute plan or reduce the workweek for applicable positions to conserve costs and keep employees. Stay on top of tracking your business expenses.
5. There’s an App for That
When it comes to managing expenses, there’s an app for that, too. Many aspects of conducting business are now automated, and budgeting is no exception.
Many budgeting apps focus on various areas of spending, from clocking hours for employees to allowing receipts to be scanned for tax purposes or reimbursement. Examples of helpful apps include LearnVest (tracking goals), DollarBird (includes past and present income) and Level Money (subtracts reoccurring expenses to show what’s left to spend). For those getting started, apps help business owners separate their personal and business lives.
Budgeting feels intimidating for many business owners. To build and maintain an effective budget, companies must see budgeting as a roadmap to future success with forecasts to weather the sunny and stormy business days.
Stay realistic, but don’t be too rigid with your budget. The ultimate goal of your budget is to keep your business running with an eye to the future for competition and growth.
About the Author: Kayla Matthews writes about communication and workplace productivity on her blog, Productivity Theory. Her work has also appeared on Talent Culture, MakeUseOf, The Muse and Fast Company.