Budgeting Tips for Growing Companies

You perform at your best when you are working continually on high-priority goals and objectives

 — Brian Tracy

What’s The Point Of A Budget, Accounting Nerds?

Ya, budgets aren’t popular. We know that. But … it’s like Buckley’s cough syrup, it “tastes awful but it works!” The budget is a guide for everybody to make financial decisions from a whole-company stance. If you’re short on cash, you need one to make sure you don’t run out. If you have lots of cash, you need one to ensure you spend it on the most profitable initiatives.

“Budget? What’s that, some kind of bird?” — anonymous entrepreneur

If you are heading up a unit/department within the business and you have spending authority, your use of cash affects how other departments can spend. If you are an entrepreneur or top executive, your decision focus is pulled from one business area to another daily, and the spending decisions you make affect the pool of available resources you can use on another focus area.

Decisions on how to balance spending between business areas, initiatives and projects are best made from a whole-company perspective. This is basic psychology — when you’re battling in the weeds, you’re going to think the thing in front of you is the most important thing. You can’t make decisions that way.

Goals: Woohoo, I’m Going To Be Rich! My Budget Says So!

While budgeting, you want to balance the boldness of your budget with the realistic constraints of your business. Set your operating budget for expenditures based on conservative revenue forecasts, but don’t tell the sales guys that. Budgets need to be aggressive and attainable. If your budget is so aggressive that it becomes impossible to realize, it will make it easy to give up on a budget. If your budget is too easy to meet, you might be missing out on opportunities to expand or optimize your business. As budgeting has a lot to say about a business owner’s mentality and priorities, what does your budget say about your business?

Painless Process to Create a Budget

The first step towards creating a budget is to start with identifying your company’s goals and objectives. The second step is to work backwards from your company’s projected net income for a fiscal year. With this number, you can project the expenses and revenues needed to achieve this goal. The third step is to determine what you’ve already committed to spending in the year, and to confirm detailed costs. The final step is to break these annual numbers down into monthly budget goals.

Setting goals is foundational to this process. As you set operational goals like expanding your workforce, buying equipment, or opening a secondary location, budgeting means finding out how much these things will cost. If you know that expanding your workforce is going to increase your annual costs by $100,000, dig in further. What are the recruiting fees, employee benefits, key-person insurance, payroll fees. You will want to budget for this before starting the hiring process.

Here’s the advice: you are too busy to do this. Don’t do it yourself. Get a financial analyst to prepare a budget for you. Give that person your goals, access to your books, meetings with key people, etc. They’ll do the legwork. You approve the budget. That’s the only painless way.

Ok, I’ve Got a Budget, Now What?

If you don’t use the budget there’s no point. Poorly done budgets are hated because they’re just annual make-work projects that disappear into the boardroom never to emerge again. Use it regularly. Here’s how:

  1. Produce reports every month that show your actual expenses and revenues, line by line, as compared to your budget.
  2. Review these reports with the people in your company that spend money, monthly.
  3. Adjust your efforts in those categories where you are way off-budget. Don’t adjust your budget to match your expenditures monthly. That would defeat the whole point.
  4. Revise the budget periodically.

Revising a Budget

Once you have a working budget in place, you will want to revise it periodically depending on your business needs. You could review your budget on a set time frame such as bi-annually or quarterly. You could also review your budget in time with big changes or projects. For example, if you have a new partnership, order a large value of equipment, or make changes to locations in terms of moving, opening, or closing them, you may want to see if these changes could affect the whole budget in the midst of a budgetary cycle.

Get Help. Get Budgeting Apps That Plug-In

If you have more questions or want to learn more about the difference that budgeting can make in your business, talk to our professional accountants and financial analysts. Contact us so that we can work through your existing budget or create a new one. Where will your budget take you?

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