Budget Help For The Small Business Owner

Getting started

• Start ... by stopping. Stop whining about budgeting. Stop claiming you can't do it. Stop claiming you don't get it. Budgeting is your best guess at what you can do for sales and expenses for a future period of time. That's all.
  
  
• Don't worry about doing it just right. You can't do it 100% right - meaning you will never guess exactly what you will have in sales and expenses. You can't do it wrong - any attempt at doing a budget is a positive move.
  
  
• Realise your power. Writing your goals and crafting your budget actually sets your goals into motion. You have everything to gain and nothing to lose.
  
  

Tools to use

• Your accounting program probably has a budgeting program in it. Use it. It will do the math for you.
  
  
• Use the "departments" feature in your accounting program. Do you provide multiple services? Create a budget for each entity.
  
  
• Columnar pads are your friends. There is nothing wrong with using a pencil and paper to work out your budget. Use whatever works for you.
  
  
• Income Statement (aka Profit and Loss Statement) from the last two years. If you don't have them, find your income tax returns. Your tax preparer created an income statement for your tax return. You can also have your cheque book register handy.
  
  

Basic budgeting steps

• Find a budget buddy. Doing your budget with someone else is a GREAT idea. Two sets of eyes will catch more math errors. Two brains will help you think out your assumptions. And, making an appointment with another person to work on the budget will discipline YOU to keep that appointment.
  
  Who should be your budget buddy? Another business owner is good. You can also work with one of your employees. Don't be afraid to share your financial information with a key employee. Their financial literacy makes them more valuable to your organisation.
  
  
• Create a reasonable 'chart of accounts'. The 'chart of accounts' should reflect your business. Customise it to reflect the action at your company.
  
  
• Goal setting for sales and expenses (costs).  Start working through your expenses. Work your way down the list and make your best guess. Reference your income statement, tax returns and cheque register to see how much you have spent on expenses in the past.
  
  There are two ways to approach the sales line of your budget:
  
  
  1. Set a sales goal and work from there
     
     
  2. Fill in all your projected costs, and then see how much sales will have to be to cover costs - and leave you your desired profit
     
     
  Either way is OK. If you start with the sales line, and there is not enough on the top to cover all the expenses you anticipate, you can go up to the top line and change your budgeted sales to make it work. Remember - the budget is pretend. It's a guess. You can move the numbers around. 
  
  
• You can fill in the budget for the whole year, or month by month. Month by month is a more usable format when it comes to checking actual performance to budgeted numbers.
  
  
• The budget is just goal setting. It doesn't need to be bound by strict accounting rules. You can budget for expenses you haven't incurred yet. For instance, if you want to set aside money for buying a new truck, you can budget for it first and then buy once you have the money saved.
  
  
• Keep a budgeting log. You are going to pull some of your budgeted numbers from thin air. Write down notes to yourself as you come up with the numbers for your budget. When you refer to your budget in the months to come, you may forget your assumptions. Write them down in your budgeting log.
  
  
• Don't put down budgeted numbers that you KNOW won't happen. For instance, if you KNOW that your insurance costs are going to go up this year, don't put down the same dollar amount as you paid last year. If you don't know the increase amount yet, find out or put in an increased number from last year. But don't put in the same number ... because you KNOW that won't be it.
  
  
• Use it or lose it. Don't bury your budget in a drawer once you consider it "done".  A budget is a viable goal setting - and getting - tool.  Each month, compare your actual performance to your budgeted performance.  Even better, check mid-month. Check your progress on the 15^th of the month. If you are behind in sales, take action to crank up sales - and to cinch down expenses. If you don't refer to your budget until after the month is over, you may miss the opportunity to salvage a month.
  
  

If you aren't comfortable with it, you will avoid it or claim you don't "get" it. But you can get it enough to give it a try. Put together a budget this year and check your progress against it as often as possible.

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