Business owners are funny. So many of them claim to be too busy to create an annual budget, yet creating a budget could actually free up their time!
But no, they’re too busy for that. But C'mom...why wouldn’t you want to plan out what you want your business to accomplish in the next year? Why wouldn’t you want to know what you’re making in relation to what you’re spending? Why wouldn’t you make the time to invest an exercise this important?
Why do you need a budget?
I guess it’s easy for me to think this way since I’ve seen time and time again how a budget can transform a business. It’s a powerful, often miraculous thing – and even though I describe it as such, business owners don’t realize its power until they do their first budget and start seeing the benefits for themselves. And then … they’re sold!
Ultimately, budgets help you make goals, communicate with your team, and grow year over year. Sure, they're not the most fun aspect of business, but they're super important! Without them, it will be super hard to scale.
Here are five things a budget can do for your business:
1. It will communicate your goals to your team.
Putting down your revenue and expense expectations down on paper helps your team to know what you’re envisioning for the company.
2. It will show you the relationship between what’s going in and what’s going out.
It’s not just about seeing the numbers; it’s about the relationship between the two. To give you an example, if you can’t make that business loan payment, maybe it’s time to stop renting that vacation home in Florida. But if you don’t want to stop sun bathing, then you have to do something about it by making sure you boost those sales this quarter.
3. It will make you more money.
Yes – I said it! It will help you decide how much you want to make for the year so you can make a plan in order to reach those goals. But your budget can also show you if those goals are realistic or not.
4. You will be able to adapt to change much better.
If your business is so predictable that you know your business revenue and expenses and they never change, well maybe you don’t need a budget (I’m being sarcastic). Business is incredibly unpredictable! If you have a budget and you lose that key client, you can see how it will affect the rest of your business so you can make the changes necessary to get back on track.
5. You will make decisions MUCH faster.
You can ask your budget questions – lots of them! What kind of questions can you ask it? Well, you know how you’ve been wondering if you can hire that new project manager but not sure if you can afford to do it? Your budget knows the answer. Or how about re-doing your website? Your budget also knows.
If this wasn’t enough reason to get you to build a budget, download our small business budget template that comes with an eBook and video series to help you build your budget. I bet by the end you’ll walk away with a working budget that you can implement and use for your small business.
How to Create a Small Business Budget
Step 1: Get business budgeting software to help you out. Quickbooks is a good option and highly recommended by many small business owners.
Step 2: Check out previous spending and revenues. Look at what you've made before so that you can make accurate predictions for the future.
Step 3: Make forecasts, then compare them with actual numbers. When you create a budget, make forecasts about what you expect to make. As time goes on, compare your expectations with reality. Budgeting software can help you compare.
Step 4: Assess, and see how you're doing. Make adjustments as you need to. The process of assessment will help you determine reasonable goals.
About the Author
Brad Farris is a small business advisor with Anchor Advisors, Ltd. in Chicago, IL. Since 2001 Anchor Advisors has been helping creative professional firms to grow, by helping them clarify their purpose, get the most from their people, keep their eye on key performance measures, and implement consistent processes. Brad is also the author of The Business Owner’s Champion: 6 Practices to Build your Nerve and your Business and managing editor of EnMast, a community dedicated to providing small business resources for owners.