Do you sit down regularly, perhaps monthly, to develop a budget reflecting your personal income and expenses? The same basic principles that apply to a household budget may be extended to your small business. In fact, it can be argued that business budgeting is now more important than ever. Here are several practical suggestions:
- Be conservative. It is far better to err on the side of understating income and overstating expenses than to do things the other way. That will help eliminate unpleasant surprises at the end of the year. If things work out better than anticipated, count the surplus as a bonus.
- Remain flexible. Essentially, a corporate budget is a projection of the income and expenses of your enterprise. In other words, it should be based on calculated estimates at the beginning of the year, but that doesn’t mean it should be rigid. Use your recent history as a guideline, but leave some room for flexibility.
- Divide up expenses. Certain costs, such as the monthly rent bill, are usually fixed throughout the year. But dollars spent on other items—for example, supplies and equipment—may fluctuate throughout the year. Identify the unpredictable expenses and separate them. Not only will this provide clarity for your business but it may lead to strategies for minimizing costs.
- Monitor the results. When your business pays its bills each month, see how the numbers match up against your projections. You may have to adjust your budget to reflect actual income and expenses. Remember that your budget is a “work in progress,” not a finished product
- Discipline yourself. Putting a plan in writing can help you curtail unnecessary expenses. For instance, without a budget you might drive down to the local computer store to buy the latest gadget as soon as you receive a big check from a client. With budgetary restraints, you can earmark the funds for necessary expenses.
- Plan for the future. Once you become adept at pinpointing business patterns through your budget, it will become easier to plan long-term growth and development. Again, use a healthy dose of caution: It’s better to be conservative than to make projections your company simply won’t attain.
- Get started now. Although it takes time to develop a detailed budget, roughing out a rudimentary version is generally better than no budget at all. If you wait until another year rolls around to take this approach, it may be too late.
Final words: If you are having difficulty balancing all the various factors, you don’t have to go it alone. With assistance from a Lohman Company advisor, you should be able to create a monthly budget that meets the needs of your particular business.