Why create a budget?
A budget allows you to take a proactive approach to managing your business. It creates a map for you to follow and assures you that you are spending your money in line with your priorities.
How to get started
These steps assume that your data is being tracked using an accounting software product. If not, this same information can be collected from your bank or credit card statements.
- Gather historical data from your financial statements for the past 3 years (if applicable)
- Export data into a spreadsheet
- Review averages and trends
- Look at $$ and %
This is where most companies move right to creating a budget for the upcoming year, adjusting for inflation, new equipment, additional employees, etc. But don’t stop here – take the next step…
Take a little extra time to drill down into some of the big expense and think about the following:
- Is this activity necessary?
- What happens if this activity is terminated?
- Can this activity been done differently or for less money?
- Am I allocating an adequate amount for this activity?
- Are the costs in line with the benefits to be gained from this activity?
You may not have time to go into each and every expense when you are doing the initial budget, but make it a habit to apply these questions to one or two of your expenses each month.
Remember that creating a budget is part science and part art
- Calculating your expenses – it is a good rule of thumb to add 10 to 15% to allow for inflation and unexpected expenses (such as a car repair)
- Determining your income – don’t forget to include other sources besides your salary, such as sale of office equipment, speaking engagement fees, etc..
- Set some savings and debt payoff goals
- Upload the budget to your accounting software
- Review monthly and make appropriate adjustments to your spending
Your budget is static – it doesn’t change unless there is a fundamental shift in the business
Please contact me @MHM@lifeworkbks.com if you would like some help setting up your budget.