Stick to Your Small Business Budget
Budgets sometimes get a bad rap for being overly complex. For example, a recent U.S. federal budget came in at over 2000 pages. That’s not exactly leisure reading. Thankfully, the average small business budget isn’t nearly as long or complex. However, it’s just as meaningful because a budget can serve as roadmap for your business, guiding you toward profitability and away from debt.
Why Budgets Matter
With a budget, you can learn from your small business’s recent performance and use that knowledge to predict and plan for the future. If this sounds a little like using a crystal ball, well, you’re probably right!
One of the most important things a budget does is centralize many of your business’s critical financial indicators, putting them in one place for you to review, adjust, and act upon. Here are some of the the things a budget helps you anticipate and set goals for in the coming year:
- Profits: or how much you anticipate earning when you subtract total costs from revenue
- Sales and Other Sources of Revenue: How much money will be coming in, from who, and from where
- Total costs and expenses: How much it may cost you to earn that revenue.
Profit, revenue, and expenses are important to any small business. A budget gathers together this data from the previous year, which you can these use to adjust how you’ll spend money in the coming year.
How To Stick To Your Budget
All positive habits need to be reinforced. That’s true whether you’re trying to lose 10 pounds by following a diet or whether you’re trying to stick to a budget. A budget helps you see how well you’re meeting your business goals. To get the most out of a budget, it’s important to come back to it consistently, rather than completing one and letting it gather dust in a drawer or on your computer.
Here are some best practices you can implement right away to help you stick to your budget.
- Update Your Budget Regularly
Budgets are commonly prepared on an annual basis but that doesn’t mean you need to ignore it until it’s time to prepare a new one. Plan on reviewing and updating it monthly based on how your business is performing. Are your expenses higher than you originally projected? Do you need to beef up your staff or inventory to meet an unforeseen spike in sales? Looking at your budget regularly can help you make necessary adjustments and stay on track for consistent profitability.
- Use Your Budget to Measure the Effect of Business Decisions
Having a budget means you can use it as a dashboard to see the effects of business decisions you make. Do you devote enough money to marketing, for example? If not, see the effects on your business when you invest more in this critical area. When you review in a few months, check if your more muscular marketing led to increased sales.
- Use Your Budget to Motivate Employees
Remember, your budget is a goal you and your employees will want to meet. Offering bonuses for meeting budgetary goals can be a way to motivate employees to do just that.
- Use Your Budget to Motivate Yourself
Just as you motivate your employees, you can use the budget to achieve high-level goals for your business, such as meeting debt-to-profit targets.
These are just some of the ways you can stick to a budget. Remember, the key is treating your budget as a dynamic document that you return to regularly to inform your business decisions.