You are probably tired of hearing me harp on the need for a budget when you are a small business. But, I feel strongly that you should have a financial plan for your business. You can use that budget to easily determine if you are meeting goals or falling short. It helps you to make decisions for your business based on fact and not assumptions, which is another one of my big pet peeves. Today, I’m giving you 3 tips for creating a budget.
Understand what a budget represents
A budget is meant to give you an understanding of what your revenue requirements need to be. You should use it to gauge and control your spending. A budget should not track every penny spent on expenses, though. Consider a budget a best guess at revenue and expenses for coming years. If you are a new business, you may have to extrapolate that information from research of your industry. If you have been in business for a year or so, you can use past years data to compile a budget.
Resist the urge to make yourself feel good by planning for income you don't have yet. Make sure your income goals are realistic and achievable. Also, be realistic with your expenses. A budget is a set of guidelines that should be achievable and improved upon. Setting unrealistic expectations can give yourself unnecessary feelings of failure when you're unable to replicate those numbers
No one can predict the future
Don't spend too much time getting bogged down in the details. Sometimes the budget numbers are going to be wrong. The purpose of the budget is to give you guidelines and more importantly knowledge. Where it is truly beneficial is in understanding why there are differences between what you expected to happen and what did happen. That experience and knowledge allows you to make better more educated decisions in the future.
So, please take my advice and sit down and create a budget. If you need some help, let me know, I’m happy to help!
Written by Tom Barnhill, Co-Owner Business by Barnhill