Fact of life—if you run a company, even as a Freelance solopreneur, you’re going to have to suck it up and put together a business budget every year. If you fall into avoidance behavior and tell yourself that you’ll do it “next month,” it is almost certain that 1) you won’t do the budget anytime soon; and 2) your business could eventually slide into financial chaos, taking with it the money and time you invested. Failure to mind business finances is business sabotage.
For many people the mere thought of budgeting brings a sour feeling to their stomach, but the fact remains—budgeting supports business success and your organization is unlikely to thrive, and may not survive, unless you do it. You may find budgeting to be an onerous task, but there is a silver lining—a budget is empowering!
Budgeting is integral to effective financial management and allows you to make informed decisions and take calculated risks that can move your company into a stronger position. Budgeting brings to light the reality of your company’s fiscal health and performance. Problem areas will be recognized and you’ll be able to propose and implement remedies designed to rectify the lapse. You will be positioned to develop reasonable, reachable, goals.
The budget is your buddy
While budgeting often brings to mind thoughts of scarcity and sacrifice, saying no when you want to say yes, you’ll feel much better when you reframe your thinking about budgets; budgeting need not always result in cutbacks. Instead of focusing on limitations, why not flip the script and think about growth? It is reasonable to view budgeting as a pathway to business success, a tactic that enables your entrepreneurial ambitions. Rather than obsessing over cutting expenses, utilize your budget as an element of your strategy to manage expenses and drive growth and profitability.
In fact, only when finances are in order can you operate from a position of strength and make good decisions. When the cash-flow and business reserve fund are healthy, you can demonstrate business savvy—you might hire one or more employees, whose productivity will positively impact sales revenue; you might move the company into a larger space; you might upgrade office or manufacturing equipment that introduce operational efficiencies that benefit anything from your marketing campaigns to the customer service and customer experience your company offers, enhancements that reward your business with loyalty, good word of mouth and returning customers.
Build the budget
Your primary goal will be to ensure that there will be enough money to operate the business, from covering selling and marketing expenses that generate revenue to meeting fixed expenses such as payroll, rent, utilities and insurance. Among the projected expenses you’ll calculate will be those specific to acquiring or creating your product or service, that is, the cost of materials or the time involved in crafting what you sell. You’ll budget for the year, so it will be necessary to make reasonable projections of future expenses and sales revenue. You also want to set aside funds you can invest in business growth, whether to carry out specific initiatives or maybe take advantage of an unexpected opportunity as well.
You will be wise to structure your budget to predict somewhat modest sales revenue and anticipate expenses that are somewhat higher than the previous year. Planning for a less than rosy scenario is the safest strategy, giving budgetary wiggle room by encouraging you to trim expenses where possible to help you build up the business growth fund.
Once you make revenue and expense projections, you can run different potential scenarios and refine your estimates of likely cash-flow and sales revenue income, to enhance your trust in your estimate of how much will be available to finance marketing and business growth.
Create a spreadsheet
A spreadsheet is one of the most powerful tools available to create a budget, not only to make it easy to view and analyze your data, but also to make it easy to change your projected data and evaluate different business scenarios. You can do the same when reviewing projected costs and sales revenue associated with carrying out a proposed business goal.
Get comfortable with the Microsoft Excel spreadsheet and learn to call up different combinations of projected revenues and fixed and variable expenses that will enable prudent decisions in every aspect of your business, from pricing to hiring additional employees. Take a Microsoft Excel for Beginners tutorial .
Monthly budget reviews
Your budget will be useful only if you review it regularly, to assess your company’s performance. Get ready for the big reveal when you discover whether (or not) actual spending aligns with the amount budgeted. If certain expenses are consistently higher than anticipated, you may need to revise the budget to reflect reality, or find ways to reduce those costs. Likewise, your budget will also reveal if sales revenue projections are either too optimistic or too conservative.
Responding to changes in your business environment ensures that your budget functions as a useful tool for financial planning. Finally, the budgeting process will, over time, become a repository of company performance data and provide an important historical overview that could be useful when anticipating seasonal fluctuations or other patterns that support your projections of future business performance.
Thanks for reading,
Kim
Image: © Mee Ko Dong for Shutterstock
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