Everyone who likes money should learn to be good with it. After all, for most entrepreneurs wealth does not come from a sudden windfall but rather from pennies stashed away here and there over the span of years. Money managing may be unpleasant, but there is one particular part of it that most people particularly hate: budgeting.
What does budget mean to you? To many of us, it has a somewhat negative connotation. We tend to think of earmarking funds for necessities along and leaving no money for more fun considerations. Budgeting does not have to be negative; if you are an entrepreneur, then it is completely necessary in fact. Here are a few budgeting faqs to get you started.
- List your priorities. This is an excellent exercise in simply learning to prioritize and manage time, but it can help with managing money as well. Think of the things that are essential to your business (rent, overhead, inventory, etc) and then move to the second place list. The most important items should receive the most money obviously.
- Don’t get hung up on the small stuff. When faced with any large task, it is easy to get hung up on the smaller aspects which, in the long run, are just not very important. Many entrepreneurs read that there is excellent budgeting software out there and lose focus on the budget itself. You should definitely research which types of software are right for you, but you can certainly begin making a budget without them. Many banks offer free software with a business account; these can be the right solution because the price is right and they are compatible with your bank account. Ditto goes for any other “detail” of your budget. Work on the big picture before filling in the details.
- Set up your budget with strategic priorities in mind. For example, many entrepreneurs need to see not just sales but sales channels. Your budget needs to be set up so that it is easy to examine how reality jives with your plans and modify accordingly. Accounting is so detailed that it can be difficult to discern these things, which is why budgeting and aggregation are important.
- Identify and watch for red flags. What issues could take down your business? In a constantly changing economy, often constantly changing for the worse, you need to identify these so that you can watch for them. For instance, maybe your margins are the most crucial thing right now. You need to incorporate these into your budget so you can easily see when you are getting off track. It is often relatively easy to correct these when they first occur, certainly easier than finding out when it is too late.
- Be consistent. You may be tempted to change categories in your budget as your needs change. This can be a good idea, but it comes with a major caveat. If you change categories often, then you may fail to recognize long term trends. These trends can be a key factor in making decisions and determining the direction of your company, so only make changes when they are truly necessary.
- Review your budget on a regular basis. I have found that a monthly budget review is perfect for identifying trends and making necessary changes. All budgets are wrong, even after years of honing them. Budgeting requires making guesses about what will happen in the future, which is never a precise task. The important thing is that you make a budget so you can compare the ideal financial situation for your entrepreneurial ventures with the reality. Regular reviews can help you to create a more accurate budget and also to identify problem areas.
- Involve employees. Many employees, even in smaller, more informal businesses, do not understand the ins and outs of their employer’s financial goals. If you have employees, you should involve them as much as possible in the ongoing budgeting process. Make them partners in the venture, even if only figuratively. Being aware of your company’s finances will encourage them to always make the best possible decisions and make them feel like a part of your business’s growth.
- Be prepared for the worst case scenario. Analysts are looking less and less optimistic about 2012. It is shaping up to be a year without growth, without credit and therefore a year without spending. You really need to step it up in order to be successful. Moreover, you need to be prepared for the possibility that your best efforts may still fall short. If you make a plan for dealing with financial strain before it even occurs, you will have a better chance of riding out the storm.
- Build sub-budgets. Change in the economic world means changes for entrepreneurs. You may need to introduce a new product, make a new marketing plan or even pull back spending. However, because these are possibilities and not definite plans, you probably do not want to incorporate them into your overall budget. You can still begin to work out how these things will affect your budget; simply make sub-budgets and budgets based on projections. It may seem like a lot of work, but you will be happy when the time comes to implement your plans!
- Don’t give up. It can be tempting to forget about budgeting and begin flying by the seat of your pants. After all, budgeting can take a lot of time, and it is discouraging when your budgets never seem to match the reality. Keep in mind that a budget is a goal—the way you would like to see money spent in your business. Even if your entrepreneurial ventures do not always meet the goals, you still profit from remaining aware of what you really want and need from your business.
Budgets are the only way to determine a path for your business and hold yourself accountable for staying on track. They do not take much time to manage once you have developed a system, but they can make all the difference in the success of your business. Don’t let a little work keep you from achieving your entrepreneurial dreams!
