By Jason Loven, CPA
Managing cash flow can be one of the toughest aspects of owning a small business. Budgeting can help—not because it’s about cutting spending, but because it gives you a way to track revenue and expenditures. Even if your finances are in good order, a budget can help you uncover hidden cash flow issues and improve your bottom line. Truthfully, no business should be without one.
Here are five steps to creating a killer budget for your business:
Budgeting is one of those things that’s easy to talk about, but hard to do…unless you commit to making it happen. Get buy-in from other members of your leadership team, and set aside a time to get the budget on paper. Remember, it’s not about cutting spending; it’s about tracking spending, which isn’t nearly as painful, right? Once you see where your money is coming from and going, you can make decisions—if needed—about how you allocate your funds.
- Begin by looking back.
Now that you’re ready to create a budget, where do you begin? Start by looking at the past 2-3 years of your business’s historical financial information, particularly its revenue. These numbers will give you a starting point for your budget. From there, you can determine how much revenue you can expect in the coming year. For instance, do you expect sales to increase, or are you a mature company with firmly established revenue figures?
Once you’ve set an approximate revenue amount, review the prior year’s expenses. If you spent X dollars for marketing last year, what will you spend this year? Or, if you increase your entertainment spending, where will you spend less? Where could you shift spending to get a better return? These are the types of questions you should ask.
- Be realistic.
Your goal should be to create a realistic budget that is as accurate as possible. That’s because the more realistic your budget is, the more relevant—and beneficial—it will be for your business. For instance, it won’t be helpful to increase your spending 20 percent if your sales are going to be flat. Of course, your budget should mirror the strategies and goals found in your business and/or financial plan.
- Know there are templates and tools that can help.
As for the actual creating and formatting of your budget, there are lots of templates and tools available, from streamlined apps to simple Excel spreadsheets. Your accountant can help you with this piece, as well as the entire budgeting process, so don’t feel like you’re alone in the process.
- Stick with it!
Creating a budget is one thing, but following it is something else entirely. It’s wise to have a positive attitude, stay motivated, and keep realistic expectations. Accountability helps, too. But if things don’t go to plan, remember: Budgets are not set in stone; they can be updated and adjusted accordingly. The most important thing is that your budget works for you—meaning it is a valuable tool for running your business.