What if I could give you a roadmap that would drastically improve your chances of your business success?
Good news, it is available to you right now – it’s called a budget. Operating without one is like driving from Denver to San Francisco without a map, you know you need to go west and eventually you will reach the Ocean, but it’s probably not going to be the most efficient route. Putting together a budget does not have to be painful or time consuming (at least not as much as you might expect) and it can help you make more strategic decisions for your business.
You wouldn’t set out on a road trip without consulting a map, planning the most efficient or interesting route, identifying stops along the way for food and sleep and estimating how long it will take you to get there. A budget is just like a good road trip plan – it helps you figure out where you want to get, how much is it going to cost and how to respond to the unexpected.
You have probably spent a lot of time thinking about your services or products and how to generate revenue but, you also need to think about what you need to spend to support that plan and how to respond to unexpected events. A strategic spending plan (aka budget) is a tool to guide your business and prioritize the use of your limited resources. Here are a few things to keep in mind as you put together a budget.
- Profit targets are just as important as sales targets, after all, you are in business to make money. Profit doesn’t just happen; you must make a plan or at the end of the day there will be nothing left for you. You may have passion and a reason unrelated to money that you are in business but without a good income it isn’t sustainable.
- Be strategic about how you use your money. Look at your growth plan and decide what you need to invest in to support the plans for the coming year. Identify a wish list and then ask yourself:
- Is it necessary?
- How will it contribute to my growth or support my clients?
- What are the alternatives for obtaining this service? Can I get it elsewhere cheaper?
- Review your current spending and make sure you are getting a good bang for your buck. Evaluate each of your expenses by asking yourself how each is contributing to business growth or supporting client relationships. Make sure you consider alternatives and reprice services periodically, you may be able to get a better deal by shopping around for basic services.
- The budget is not a one-time thing you create and then put away. Monthly budget reviews are similar to checking Google Maps along the way. They allow you quickly see when something looks out whack: Profit looks low? – maybe you missed and invoice. Operating expenses looks high? – did you accidentally pay rent twice or were there subscription changes you weren’t aware of? When you catch rising expenses early there are often adjustments that can be made to bring them in line before it gets out of hand
- Income and expenses can be lumpy, and surprises happen. Use the budget to create a cash flow projection to identify expected cash fluctuations and plan for any expected shortfalls. You may need to set aside reserves for taxes and annual insurance premiums and equipment that keeps your business running. The budget also helps you identify ahead of time when you might need financing and it improves your chances of getting the loan. Bankers want to know you have the resources available to repay the loan and a disciplined plan for spending money available to you.
- Last, but not least, Involve your people. As you grow a budget allows you to delegate responsibilities without giving up financial control. It gives your employees an opportunity to have input on how the business spends money and use it as a tool to guide spending decisions.
Think of the budget as your roadmap to get your business from where it is to where you want it to be. Creating and monitoring your budget allows you to be strategic about utilizing your business resources to drive you towards your goals. Fall is the perfect time to start planning for the next year so let me know if you need help setting up your company budget.