7 Keys to Successfully Manage Your Business Budget
Running a business is a daring endeavor. It takes a lot of determination and responsibility. However, there are other factors at play as well. Even the most motivated entrepreneurs couldn’t have succeeded if they didn’t know a thing or two about budget management.
Companies of any size are subject to serious budget fluctuation, whether it may be expected or not. This is why having a clear budget plan that is flexible enough is needed, to withstand critical situations. The vast majority of rookie managers don’t get adequate training on creating a precise budget forecast. This, in effect, leads to poor expenditure tracking, which could cause your company’s budget to bleed here and there.
Despite the fact that a trial and error approach could be a viable solution, it can easily be considered too risky. Here are a few tips:
Always exaggerate your expenses
Obviously, this is not a suggestion to crank up your expenditure, but rather about expecting the worst and leaving as little as possible to chance. Especially if you’re running a small operation, being too optimistic about your income and expenses is dangerous.
Furthermore, if you provide services, it’s safe to say that no two projects are the same, which suggests that some may be more demanding from a financial aspect, which infers that you should always expect less income and more spending to stay safe.
On a similar note, it’s important to exaggerate the costs of maintenance. Whatever your niche or industry is — there are many things that you need to purchase, renew, repair, upgrade, and so forth. Do not hesitate to throw in an extra 15% percent on your expected maintenance costs, because as Murphy’s law famously states: “whatever can go wrong, will go wrong.”
Ensure impeccable bookkeeping and accounting
While both bookkeeping and accounting stand for pretty much the same thing, there is an essential distinction behind them: bookkeeping is about recording expenses, accounting is about interpreting and analyzing them. Both must be impeccable, in order to always be in touch with the financial state your business is in.
Similarly, expenses need to be categorized correctly. Let’s take the basic example of buying someone lunch. In one situation it’s your client, which you’ve taken out to discuss further proceedings. In another situation, you’ve invited your employees for dinner to celebrate a successful quarter. Despite both being similarly unrelated to business per se, they do have to be placed in different categories. The first one should be considered a sales expense, or even investment. The second should fall into your operations budget.
Proper categorization will allow you to have a better understanding of where costs can be cut, if necessary.
You do need your team’s help
As gifted as anyone can be, bias is always a problem, and there’s basically no way around it. Another important almost truism, once stated by Maslow, is that your employees are more creative than you think, which is a more sophisticated way of saying that two heads are better than one.
Furthermore, inquiring for assistance on essential tasks like these would only substantiate your trust in your personnel and will bring a sense of motivation and fulfillment.
Adhere to a planning cycle
It’s always a great idea to follow a pattern when it comes to objectively assess your annual budget and performance. This will allow you to superpose yearly results, compare them, and find ideas for improvement wherever it’s possible. Create your own pattern that will better reflect the peculiarities of your niche or industry.
Here’s an example:
- Start by analyzing your current performance and comparing it to your previous year. Draw conclusions.
- Find the opportunities for improvement and find the issues that have caused your company to slow down its performance.
- Go through your most successful and least successful projects of the current year and draw conclusions.
- Analyze the necessary budget-related adjustments your company needs to make, in order to adapt to future projects.
- Establish the total resources you’ll need to cover maintenance or any other mandatory elements of a budget.
- Define the upcoming year’s KPI’s regarding profits, taking all the losses into consideration.
- Create a conclusion to your budget plan.
- Don’t forget to address the budget regularly, preferably every month. Your company can always enter an unexpected territory, which implies that the budget might need to be adjusted or modified. Return to it regularly and assess your decisions and possibly introduce new business ideas.
- Return to point 1 and repeat.
Focus on what matters most
It is each and every company’s freedom to establish what matters to them most, but we believe that it is every businesses responsibility to build a budget with its employees in mind. Your personnel should be one of the central figures in your budget. Never hesitate to allocate some extra resources to improve the quality of life of the people who work for you.
Do not hesitate to allocate a part of your budget for rewards. Each and every one of your workers have their own concerns, preferences, and interests, which makes it essential to remunerate them in accordance with their interests, when possible. Businesses take time to invest in their personnel’s interests as it guarantees greater percentages of employees’ retention, and normally attracts better professionals for a longer period of time.
Don’t forget what budgets are for
Budgets have a set of very precise functions and we often forget about them. Budgeting has become such a chore, we tend to automatically execute the plan, without giving it too much thought. However, since all businesses are different, the goals they pursue are different as well.
The common aims of a business’s budget are:
- having better control of the company’s finances
- a clear understanding of whether the company’s commitments can be met in the upcoming year
- “pinpoint” your position financially and give you a better understanding of what your company can and cannot afford
- Make sure that there are sufficient resources for upcoming projects
However, it’s essential to establish what other things your company may be looking for when planning a budget.
Relieve your budget plans from ambiguity
It is quite a common case that businesses fail to write a very clear budget plan, simply because they don’t have a clear separation of concepts. If not worded correctly a budget plan can become more of a burden, rather than an asset. Never hesitate to consult a professional paper writing service when it comes to writing such documents to eliminate any possible issues related to ambiguity and unclear language.
Budgeting is a fairly demanding task, but it is absolutely imperative for the proper functioning of an aspiring business. Make sure you invest the necessary time and effort into your budget, in order to bring some extra stability to your company.