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How to Build and Use a Business Budget That's Useful All Year Long

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How to Build and Use a Business Budget That's Useful All Year Long

By Caron_Beesley, Contributor
Published: June 3, 2013 Updated: June 3, 2013

Business budgetBudgets are difficult to plan and maintain at the best of times – unexpected events, cash flow problems, supply chain issues and more can all reap havoc with even the most thoroughly planned business budgets. The other problem with budgets is that many of us set budgets in our business and personal lives at the beginning of the year, and then file them away until the year-end rolls around once more.

And this is where the problem lies: your business is never static, and your budget shouldn’t be either.

Here are some tips for developing and managing a dynamic budget that can keep you on course all year long.

Why Budgets Are So Important

Budgets are enormously important to the operation of your business; not only do they help you manage your costs, but they also help you determine whether you profit goals are within reach and keep you on the right road from month-to-month. In its simplest form, a budget is a detailed plan of future receipts and expenditures. Think of a budget as a tool for providing control. For example, by looking at next quarter’s budget you can anticipate peak periods and schedule stock and labor to handle the sales volume. You can also plan vacations, marketing activities and inventory taking for slow periods.

Most small business owners generally use a budgeting method that starts by identifying the profit they want to make and then listing out the expenses they’ll incur in order to reach their goal. There are several resources at the end of this article that can help you build your business budget.

Update Your Budget Monthly

If your budget is going to work for you, plan on revisiting it on a monthly basis with your management team and update it based on your business performance and expenses for the prior month. Take a look at your sales forecast – how’s your pipeline looking? Are there any indicators that you need to make changes to your budget to cover additional inventory or staffing needs? Look at your expenses – are they as projected, or do you need to cut back in certain areas to ensure you stay on track?

Make Changes That Can Have a Positive Impact

Based on your monthly review, make changes to your budget and then wait to see what impact these have to your income and profits – by month and by year. For example, perhaps you are under-investing in marketing – adjust your budget and see what happens to your pipeline next month or over a six-month period. In your next review cycle, look to see if you are a getting good return on marketing dollars spent per sales lead. Then use this information to inform future planning decisions about where best to allocate your costs.

What about receivables? Are there ways you can speed up your invoicing and payment cycles to keep cash flowing into the business?

Respond to Unexpected Changes

Use your budget to help you adjust to the unexpected. Say, for example, an important client cuts their own budget and reduces the amount of business they do with you. Take a look at your budget and how this reduction in revenue affects your cash flow and for how long –- meaning how long will it take to find a new client to replace that important revenue source and what will it cost you in terms of marketing or hiring costs to help you uncover new business?

Tie Incentives to Budget Performance

A great way to get everyone on-board with the idea of focusing and interacting regularly with your budget is to tie performance bonuses to it. So, at the beginning of the year when you plan your annual budget, set parameters for performance tied to profit, but also other categories such as return on investment in marketing dollars, keeping expenses at or lower than plan and so on.

More Information and Templates

For more information on crafting a budget for your business, check out this easy-to-follow guide – Budgeting in a Small Service Firm – from SCORE that explains how to create, manage and adjust a small business budget. SCORE also provides a downloadable and editable 12-month budget template.

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Image courtesy of Casey Konstantin, Flickr

About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

so many benefits for budgeting in your small business. not only can it help you better manage your expenses and increase your profits but can help you get a needed business loan
Great post - just wish more small businesses would actually follow your advice.
Good blog to keep a hand on company budget, it is better to keep budgetary control over a self & from time to time it needs to be rectified as per companies requirement. Making co. budget has a long time benefit to run the business smoothly, but budget should be prepared to match all the uncertainties.
I really struggled with this for the first year and then I finally got it all straightened out. I was so overwhelmed with making the money that I forgot to set aside money for other expenses like advertising, supplies, etc. This really helped me put things into better perspective!
Keeping a handle on your business finances is extremely important. It's very easy to get out of hand if a budget isn't set and for the most part followed.
Great post - budgets are important. But, budgets are also a tool that should be used to grow your business. Just having one and actually using to better understand and manage your business is no good. Also, while all businesses have unexpected events that crop up from time to time - that does not mean that your budget is no good. Budgets are a way to manage your business - manage your business to your budget - not let your budget mange your business. If you allocate X dollars to your marketing - then stick within that budget - manage your business to that number - no mater what else happens. If you find that something is not working with your marketing efforts - shift your efforts not your budget - until you find out what actually does work. Great post - just wish more small businesses would actually follow your advice.
Making a budget of your business for long term is good, but it should revise and upgrade according to monthly needs and prediction of future. Budget templates are good for the help of small businesses, these are really helpful to them to make their budget according to nature of their businesses.
Updating your budgets monthly is a good practice to follow. Your budget shouldn't be static because, you can't predict the future. You need to continually adjust your budgets to accommodate for unexpected expenses, a change in markets, and other events out of your control.
great topic. But actually I'm in the trouble of handling my budget for business month after month. This article is really useful for me at this time.
I like to use budgets as a simple track to follow. But if I deviate from the path not to be too hard on myself. Some times extra expenditure can not be monitored immediately! thank you for the great post!

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