Budgets for Small Businesses
By Craig Gocken
If you own a small business or are contemplating the launch of one, you probably know how important it is to accurately predict and track the flow of money into and out of your organization. A budget is a valuable tool which helps you to manage this necessary function. It helps you to evaluate individual financial aspects of your business that are hard to discern by just looking at the bottom line. In this post, I’ll give you some recommendations on creating a sound budget and utilizing it to your advantage.
Before Your Budget. Before you begin on your actual budget, you need to have a good understanding of your business – what it is, where it’s going, how you plan to grow. These elements are typically fleshed out in the mission, vision, strategic plan, and business goals. Your budget can be understood as your plan to fund your strategic growth and meet your business goals. Thus, without this basic understanding, your budget will not be as beneficial.
Creating Your First Budget. Once you have all the prerequisite decisions made, you can begin putting together your actual budget. If you have never created an annual budget for your business, this may involve some guesswork. What do you expect your business to earn? What expenses do you anticipate? What fixed costs will you have? What variable costs will you have? At this point it is often helpful to talk to industry experts or others with similar experience.
Revisiting Your Budget. In the beginning it is a good idea to look at your budget on a regular basis to see if your predictions were accurate. You can compare your budgeted numbers with what is actually coming into your business and what is actually being paid out of your business. Doing this frequently will enable you to adjust accordingly before you get too far off track.
Making Your Subsequent Budgets. On the other hand, once you have some data from your business, this process becomes a little easier. You can look at what you earned last year and use that number to project growth for the next year. Likewise, look at how much was spent and in what categories. Use this to predict what your expenses will be for the next year. Each year that you make a budget and record your actual earnings and expenses, this process should get easier and your predictions should get better.
Tracking Adherence to Your Budget. With your projections on paper, your budget becomes your guide as well as your tool for monitoring how you are doing. Your budget will help you make decisions that affect your earnings or your spending. It also allows you to evaluate the health of your business and what changes might need to be made. Keeping careful records of your actual payable and receivable accounts is an absolute necessity to getting the full benefit of your budget.
As you work toward planning and evaluating your budget, you may find that business requires capital investments or cash flow solutions. When that occurs, Federated Bank has financial solutions that can help your small business achieve its goals while maintaining your budget. Come in and talk with a loan officer about how we can help.
