Don’t have a budget for the new year yet? It’s time to get down to it. We’ve got some tips on how to create a budget for your business that you can reasonably expect to stick to.
Creating a budget can be stressful, but here’s the good news: It doesn’t require locking yourself in a room with no windows or technology for a week – just some clearly defined goals and accurate financial records to refer to.
Why you need a budget in the first place
Every business, big or small, should have a budget. Period.
A budget serves as your guide on how to allocate your money throughout the year, based on your expected revenue. Without a clear budget to follow, it’s easy to get carried away with your spending and lose sight of what your business can actually afford. It’s like going shopping with a blank check – it’s a whole lot of fun until the money runs out (which it always does, eventually).
Creating a budget for your business ensures that you’ll have the money you need when you need it. It will also help with every aspect of your planning for the coming year and beyond.
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How to create a budget for your business
1. Clean up those messy books
The best budget is an accurate one, or at least as close to accurate as possible.
As a starting point when creating a budget, you should make sure your financial records are balanced and fully up to date. You can’t make informed decisions about the future unless you have financial data you can really rely on.
Read more: 3 Financial Documents Every Business Needs
2. Use your historical data
Once you have accurate and up-to-date financial records, use your historical data for guidance when determining how much money to allocate. Factor in any changes you expect in the coming year that may affect the actual numbers, and be sure to also adjust for inflation rates.
Don’t have historical data to refer to because your business is a startup? Then just use your best judgment and do your best to outline any potential expenses you can think of.
Be sure to prepare for the unexpected and set aside some funds for potential emergencies, too. Launching a startup is exciting, but if you don’t have a cushy contingency fund, you might want to skip the high-dollar, champagne-fueled celebrations…at least for now, anyway.
3. Be realistic
Your budget needs to accurately represent the needs of your business, which means you need to account for all the little expenses that may seem insignificant on their own.
Sure, you should try to cut expenses where you can, but don’t set lofty goals you aren’t able to stick to. And always be sure to allow for some wiggle room. There will always be some adjustments to make as priorities shift.
4. Monitor and adjust as needed
Don’t think of your budget as a set-it-and-forget-it thing. Once you’ve created your budget, you should continually monitor your monthly spending to ensure it’s staying within the boundaries that you’ve set.
A key part of this is maintaining your financial records and balancing your books every month. Having consistently accurate and up-to-date financial records to refer to throughout the year will help you to adjust your budget as needed.
Unexpected expenses are sure to pop up (because, you know, life). But if you keep consistently accurate records, you’ll know exactly how much money you can pull from other areas to cover the unexpected.
Whatever you do, don’t go without it
No matter how small your business is, you absolutely need a budget to give you some guidance on how to best use your money in the coming year. Use your best judgment and make sure you have accurate financial data when putting together your budget, and you’ll have a greater chance of a successful and profitable year.
Want some help with creating your budget? Well, it just so happens to be our cup of tea. Just give us a shout.