Budgeting for your business is a key part of business planning and decision-making. It’s more than crunching numbers and adding up bills, but is a way to determine how well your business is doing and what improvements should be made using financial data. It's best when you do this on a regular basis. Terry Bishop of Core Financial Outsourcing shares his best practices in creating a small business budget.
Know Why You’re Creating a Budget
Creating a budget helps you set goals for your small business. You may use your company’s profit and loss statement to help determine your organization’s health and create your budget starting there. This helps you gauge your operation’s past performance and allows you to plan how you should guide your business in the future. If you are just starting out and haven’t had any revenue yet, you should estimate what expenses you are most likely to incur. The point of doing this is to “learn about your business and the things that are working well and not working well,” says Terry. If you find that you are losing money in some areas, ask yourself why this is and come up with a plan to make improvements. If there are areas that are going as you expected, you should still ask yourself why it’s working and continue whatever practices are contributing to its success.
Apply What You Have Learned
Once you’ve reviewed your budget and assessed what is working and what isn’t for your organization, you can adjust your goals for the next period your budget will cover. You don’t want to set goals that are too ambitious, because you don’t want to get frustrated and quit what you set out to do. However, you don’t want to set goals that are too low because without the challenge you may not see the point in establishing a budget in the first place.
By continuing the process of creating a budget you tend to get a sense of control over certain aspects of your company. The areas where you feel you have less control are the areas where you will create a plan for improvement. This is a muscle you will continue to build as you regularly rework your budget. “This is something that is continually done year after year, because the more that you do it, and it’s painful at first, but the more that you do it, the more you learn about yourself in terms of what your limitations are and then how can you grow,” Terry says.
Research Your Industry and Get Help If You Need It
It's wise to learn about your industry as a whole in addition to your own business when creating a budget. Do this by attending webinars offered by industry insiders, joining associations related to your field, or exploring research databases that you may obtain free from your local library. Use the information you gain from these resources to plan how you want to grow or shift your business. Bring in other voices if you are unsure how to do this. Get advice from your accountant, attorney, or your SCORE Mentor if you need guidance on how to interpret and apply this information.
If you want to learn more about how to create a budget to improve your business success, head to our webinar “Small Business Budgeting Made Easy,” presented by Terry Bishop.