How to Create and Stick to Your Small-Business Budget
Written by Eddy Hood
Not having a small-business budget is like driving blindfolded. Sure, you might not have hit any bumps in the road yet. However, to really see where you are, where you’re going, and how your business is performing, you need a detailed, accurate, frequently updated budget. With it, you can watch the scale tipping between income and expenses, make judgment calls on what should be cut, and determine success.
Many small-business owners choose to create a year-long budget. But remember that the more granular you get, the easier it is to find losses and mistakes. As accounting professionals, we know that there are many extraneous details in small-business budgeting. However, here, we’ve listed some basic tips on how to create a business budget:
Organize Fixed Versus Variable Expenses
The first step in creating a business budget is developing a long, accurate list of business expenses. These expenses can (and should) be organized in two major groups: fixed expenses and variable expenses. Fixed expenses tend to stay the same from month to month or at least change very little. These include operational expenses, such as utility bills, rent, insurance, and loan payments. Variable expenses are different. They tend to fluctuate based on the production output. For instance, if Sally were to sell more cupcakes during July, she’d have bought more flour, a variable expense.
Look at Income and Cash Flow
On the other end of the bookkeeping spectrum is your income. Sales, net profits, and cash flow should be included in your small -business budget. Accounting for income on the same spreadsheet will allow you to reallocate funds should you perform better than expected. If you do well in January, you may have extra money to cover losses in May. On the cash flow end, business owners often separate out their gross profit to give them an idea of how well they did.
Compare and Be Realistic
One of the most important things to look at is your “budget” and “actual” columns. You can make these as detailed as possible. Be realistic when creating these general small-business budgeting numbers, and be sure to allow for some wiggle room. No one can see the future, but they can plan for miscellaneous expenses. Your “actual” column is the one that needs to be updated frequently. Keep in mind that a budget is only as good as how often it’s updated. If shockingly high actual expenses pour through on the first month of your budget, you’ll need to readjust your budget accordingly. Not updating your budget is like driving blind.
Don’t Ignore Discrepancies
Often, people make honest mistakes when creating a budget. For small-business owners who are new to budgeting, there are many different instances where a discrepancy is not necessarily a mathematical error. If something is too high or too low, check both your math and your paperwork. Don’t “ballpark it”; “close enough” attitudes can lead to lost revenue.
Enlist Help, If Necessary
Don’t be afraid to ask for help; it’s why outsourced accounting services like those offered by Ignite Spot exist. Our online firm can help you plan and implement a detailed budget, organize and report on key data, and make suggestions to help you become more profitable. Learn more today, or download our free audiobook with more profit-building tips.