Tips for Building a Budget and Sticking With It
by Larry Slusser on March 31st, 2008
Building a budget for your business will take time to put together. However, it can be easy to move away from following the budget. Below are some ways to help you stick with the budget you spent time developing.
First, if you have never done it before living within a budget can be difficult as well as educational. For instance, knowing how to reasonably trim your expenses, or how much of a cash reserve to keep on hand will take time to develop the skills. Learning along the way, adjusting when appropriate will become easier as you practice.
Next, you developed a budget, but that was a best guess. You will need to be prepared that you will most likely miss your budget projections. However, your actions in correcting the missed budget will be adjusting it accordingly. Specifically, if you have a bill that you budget for, say around $100 a month and for the last three months it has been consistently around $150, this is where you will need to adjust your budget accordingly. If it is running less expensive than you budgeted for, you can then reallocate that money somewhere else within your budget.
Even though you have established a budget, this does not mean that you become extremely rigid in regard to the budget. You will need to be flexible to change things accordingly, such as your revenue is not as high as you had budgeted for, then you will need to trim back on expenses, and if you are bringing in more than expected, you may want to invest the money into upgrading equipment, etc.
Additionally, ensuring that your inflow is more than your outflow will be crucial to following your budget. Monitoring the inflow will help you to know if you will be able to cover your monthly expenses, particularly if your business has long periods of time between the inflow of money.
It is also a good idea to be a little more conservative when setting up your budget. You can do this by overstating some of your expenses, along with anticipating your revenue to be lower. This is a good strategy to ensure that your cash flow will be enough to cover your expenses. Money saving ideas is a good choice as well, such as lower phone plans or less expensive office furniture, etc.
If you can, set aside a cushion of cash. Having a stash of cash will help any small business with both success and threats to its survival. Of course trimming expenses is a good way of adding cash, but if there is any extra, it is a good idea to put it away. If your budget allows for it, earmark a certain amount of money and put it into a money market account. This money may come in handy if your taxes were higher than anticipated or an unanticipated bill is received.
Again, ensure that you are checking your budget every month, if not more often. Examining your cash flow will ensure that you are away of what available funds you have and need. If you are adjusting your budget as you go, then this will help to provide a cushion should you have any overruns in your budget. Of course saving any extra for such occurrences is also a good idea.
Last, your budget should help to restrain you from impulse purchases rather than constraining you to pay for what you should be paying. Setting up and maintaining a budget is a good discipline tool as well as ensuring that you are reviewing it for any adjustments needed.