Budgeting in Business

Most of us have a budget of some kind - whether that’s a super strict amount for each thing we purchase or a general only spend X money this week/month/etc. When it comes to business, budgeting is just as vital.

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Why Budget?

Besides the straightforward answer of “because it saves money,” budgeting has a few other important uses as well. For starters, creating (and maintaining) a budget can allow you to make smarter decisions with your business. Knowing your spending makes it so you have the advantage in making serious financial choices and what future opportunities may be worth investing your time/money into. Another way budgeting is impactful is that it allows you to better prioritize things and gives others (as well as yourself of course) a good idea of how your business is currently operating. Now that we understand the crucial role of budgeting, it’s time to create our own!

Making Your Budget

Creating a budget can sometimes feel overwhelming but it becomes a lot easier if you break it down into the following six simple steps:

1. If you are already using accounting software for your business, one of the best places to start with a budget is by pulling a Profit & Loss (P/L) Report. This allows you to see how much money you have coming in & what amount of money you are spending on expenses. If this business is brand new and you have no idea of the financial spending yet, we can move onto the next step.

2. Here we’re deciding how the budget plays into what we want out of it. For example, if we want to improve profits, how can our budget get us there? It’s important to be clear and ensure these goals are realistic.

3. Now we are going to factor in our revenue & expenses and estimate how much it will bring/things will cost.

   1. Be sure to include all things in revenue like investments, services, sales, etc.

   2. Some expenses will always be the same (like rent) whereas others will fluctuate (like some utilities). It’s important to keep those in mind when estimating.

4. Just like our everyday life, business does not come without surprises- some of those not being good ones. It’s crucial you have an amount set to cover these unexpected costs that may arise. 

5. With everything all set up, it’s time to really reflect on what you’ve created. Ensure that your expenses do NOT surpass your income and the estimated amounts are practical for both sides. Also, ask yourself if this budget is beneficial to your financial goals and if it plainly lists out all the things you need from it.

6. Once you’ve ironed out your estimated expenses and revenue, allocated money to an emergency fund, figured out what you want from your budget, and double checked it all makes sense, it’s time to set the budget in motion! Keep an eye on your budget regularly and note if it is working as you expect it to. If not, you can always head back to the drawing board and see what may be costing more. Perhaps you’re generating less revenue than expected, something is costing more than you originally planned, or your goals are just unrealistic. Even if your budget is working out well, it is vital to adjust occasionally. Every year the cost of things increases and it’s imperative that your budget reflects this accurately.

If you’re still having a hard time with expenses, there are a multitude of ways to save money.

Tips for Saving Money

Using our created budget, you can take a look and go over anything that feels out of place or is much more than you expected to spend. If everything is as it should be, or you feel content with the actuals of your budget, consider spending less on things that are not directly tied to your business. Maybe that’s travel, entertainment, or meals at places. Anything that is not specifically tied to your business staying afloat. Another good place to check that extra money may be going is subscriptions. Sometimes it’s easy to forget we had one going, or perhaps that version no longer serves and you can reduce it to a lower tier (or get rid of it all together.) Whatever the reason, always keep your eyes on subscriptions! Cutting costs in energy is also a beneficial way to save money. You can do this with things like turning off any lights when you don’t need them, not running water for a surplus of time, and regulating temperatures. Moreover, you can even get thermostats that you program how you see fit! (For instance, turning the thermostat off when no one is there and making it come back on again in the morning.)

Next, try to make a deal. Speaking to your Vendors can really make a difference in lowering your costs. You may find out that you can get more things in bulk for cheaper, make a new and different payment plan, or even just end up talking to the right person who’ll cut you a deal. Speaking up can also let you see the price comparison for yourself versus others and if there are any better options out there for you at this moment in time. On the topic of looking into things, it’s also a good idea to go over any shipping of products you have. You could slow down shipping (ground versus priority for example). Some businesses manage this by offering free shipping for ground versus the customer paying for anything they want expedited. All in all, there are many little ways to save in business and you can check out some more with this link here.

Get That Budget Built!

With every step laid out, tips given for less spending, and the importance of budget known, go on out there and build your best budget for your business! And if you need any help, TAK Consulting is here for you!