Planning a major event, vacation or making a major purchase takes a lot of planning. And so does creating a new product or service or starting a major project. And the first thing people do for each of these tasks is create a budget, right? So why is it that when it's time to start a business you don't create a budget??
Budgeting and accounting are necessary evils. No matter what – they have to be done. And no one wants to do it. People dread it as if it is the black plague. But you must perform these tasks regularly in order to manage you business finances.
So I am going to share with you three simple steps to create and maintain a budget. These steps can be done by anyone for any one of the major activities I mentioned above. And I am giving them to you because I don't want you to have ANY excuse as to why you didn't create a budget.
So here goes…
- Most business owners, well people in general, budget for expenses. No one ever thinks about the revenue. In order to have a complete budget you have to factor in the revenues and the expenses. Think about it – if you only budget for the expenses you are already at a loss. Never thought about it that way before have you? So figure out how much income you want to earn per month and then multiply it by twelve to determine the total for the year. I also suggest adding 5% – 10% cushion to cover unexpected expenses that may not be accounted for.
- There are so many costs built into a budget. And often times people budget for the big items but not the little incidentals. And it is those little items that can cause you to blow your budget. So don't forget about the little expenses, such as office supplies, internet fees, and even parking. List them ALL by month and then multiply those figures by twelve to determine your total spend for the year. Now if you notice that this fee is close to or higher than your revenues then you need to do one of two things:
a. Revisit step one and update your revenue or
b. Go through your expenses and make sure all of the costs are reasonable. You may need to push some items to succeeding years or find new vendors with lower costs..
- Whether you maintain this budget within your accounting package or in an excel model, it doesn't matter just track it somewhere. Don't create a budget and then try to manage it in your head. It won't work. You can't remember it all. Input your actual figures monthly or weekly, depending on the project, and compare your actual figures against your budget. This will help you monitor your spending and better manage your cash flow. It's a simple process that can take as little as five minutes. This process will help you keep a handle on not just the items budgeted but also those incidental items that you didn't budget for. Again, these expenses are what can blow your entire plan and if you don't know they are there you can't take a recourse action.
How has creating a budget in the past help you run a major event or project? How has not having one hurt you?
Sherrell Martin is the Founder and CEO of Empower 2 Thrive, LLC, a boutique practice offering financial management accounting and business development strategies. She uses accounting, finance & business strategy to help business owners and entrepreneurs who struggle with business and financial organization establish systems that will allow them to create, build and maintain a financially thriving business.