FINANCING & BUDGETING • January 8, 2015
4 minutes Read
The holidays are over, the New Year is in full swing, and it’s time to roll up your sleeves and get back to work. Of course if yours is a holiday-dependent enterprise, you may look at the first quarter as a short lull before the next seasonal rush, but a successful business owner is always looking ahead. Whether you run a seasonal business or one that’s pretty steady year-round, sticking to your yearly budget is essential to your profitability (and more than likely to your survival as well). In fact, some of the top reasons for small business failure can arguably be traced in some way to the inability or unwillingness to make and/or adhere to a budget.
Most business owners learn pretty quickly how important it is to have a budget, without which it’s all but impossible to really know how much money is coming in and how much is going out. Having a sound and realistic budget decreases risk, makes you more attractive to financial institutions such as banks, and helps you and your employees understand where your company is going.
The key word here is “realistic,” because if your budget doesn’t reflect the reality of your individual business, you’ve only wasted your time, effort, and probably money as well. But creating that budget is only half the battle; you have to stick to it – and that can be a challenge for many business owners. Below are some pointers to help you stick to your budget for the coming year.
1. Gather adequate tools and support to keep you on track.
Maybe you’re not a “numbers person.” Many entrepreneurs and small business owners aren’t, and even if you are – even if you created your own budget without any outside help – you simply may not have the time to be hands-on with every little day-to-day detail. That’s why you must engage someone you can trust to tend to those details. At the very least you need a competent bookkeeper to keep track of your income, receipts, and expenses, and to generate regular reports (preferably weekly, but certainly monthly and quarterly). These reports will let you know whether you are sticking to your budget or headed for trouble. If you can’t or don’t want to hire a full time staff member to perform these tasks, outside bookkeeping services are available for reasonable fees; if you have an accountant, she or he can probably refer you. You might even consider hiring an accounting student as an intern to help you with bookkeeping duties. If you’re determined to do it all yourself, at least use software; your accountant can probably recommend the best type for your business. Many tools are available for small business owners, and are either relatively inexpensive or even free. Consider a spreadsheet program like Windows Excel, or free downloadable budget templates, such as Google Docs. Also consider taking a small business extension course that will help you become adept at budgeting.
And you can always ask other small business owners or people in your industry for recommendations. You don’t have to go it alone, and you shouldn’t. So many entrepreneurs have a “lone ranger mentality,” but don’t ever be afraid to ask for help. You can’t do everything yourself; the sooner you learn that, the better off you’ll be.
2. Don’t solve current challenges with “solutions” that jeopardize your future.
When you’re handling details, you can’t lose sight of the bigger picture. While this point might seem obvious, it’s surprising how many companies (or legislative committees, for that matter!), seek the short-term “fix” at the expense of the longer term results. Take cost cutting, for instance, which is often viewed as a quick fix for a company (or a country) that’s in trouble. Laying off half of your staff or cutting corners in production or necessary services, while doing nothing to increase revenue or decrease unnecessary spending, is not the best way to balance your budget. It’s more than an ethical problem; for most businesses it’s a recipe for disaster. Being cognizant of day-to-day details while keeping your eye on the larger reality is a true balancing act – which, of course, is why you need to surround yourself with good people who can help you do just that (see number 1, above).
3. Don’t be afraid to re-evaluate and revise your budget if necessary.
Even the most realistic and carefully crafted budget isn’t perfect, and certainly isn’t written in indelible ink. Although a truly comprehensive plan should allow for anticipated fluctuations as well as emergencies and other potential budget-busters, it’s impossible to plan for every contingency. Having a flexible as opposed to a static budget can help prevent some problems. Beyond that, budget revision may be necessary at times, and may not just be a one-time occurrence. In fact Vicki A. Benge, a small business owner who has worked as an insurance agent and small-business tax advisor, writes, “In a well-managed business operation, each new budget or budget revision is evaluated for its efficacy on an ongoing basis. Budgets are regularly revised, either in part or whole, with the goal being increases in profits without a decrease in quality of products or services rendered.”
Be sure that your managers, department heads, and other key employees are involved in the process. And although budget revision isn’t something you ever want to do for trivial reasons, sticking to a plan that clearly isn’t working won’t help you or your business.
With proper support staff and tools, an ability to keep your eye on the big picture, and a willingness to revise your plan when absolutely necessary, sticking to your 2015 budget should be a breeze. It’s not the most glamorous or exciting aspect of running a business, but it’s one of the most essential. Good luck… and Happy New Year!
For more information on budgeting basics, see http://www.principlesofaccounting.com/chapter21/chapter21.html
Photo credit: schatzie/shutterstock.com
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