Small business budgeting is one of those really valuable business tools that, (like business plans for small businesses,) is often put to one side due to a perceived lack of time or in the too-hard basket!
Many small business owners are pushed to their limits just keeping the doors open. Particularly in the first few years of operation. New business owners either don’t get the time to set up a workable small business budget or do not see the value in taking time out from ‘fighting fires’ to set one up. What they don’t realise is that a budget is not just an educated guess as to how much money their business will make. It is a necessary planning tool.
Creating a Budget
Creating a budget is a bit more complex than throwing a few numbers into a spreadsheet. If it is the first time you are attempting a budgeting exercise for a new business, you will need to do quite a bit of research into how your costs behave and your current pricing models.
If you have an existing business, you can use your financial history to develop the core of your small business budget as your history is a reasonable approximation of the costs of doing business given the business decisions you have made in the past. You can easily develop a list of expenses by month as a basis for forecasting future costs. Once you have that, you can start developing ‘what-if’ scenarios to test the impact of your business strategies on your cash flows and ultimately, your likely profit or loss.
Budget Templates for Small Business Budgeting
If you are not comfortable developing your spreadsheet for your budget, there are many budget templates available online either free or available to be purchased for a very small fee.
Using someone else’s template reduces the flexibility but if you are not an Excel guru yourself the time you will save by using a template will more than make up for it.
Budget Management
Once you have set up your small business budget and you are happy that the assumptions you have made during the budget development phase are reasonable and achievable, it is time to put the budget in place and start managing against it.
Day-to-day decisions about pricing and purchasing should be guided by the decisions you have made when you were developing your budget. If you decide that your profit margin will not go below a certain percentage, do not drop your prices unless you are prepared to rework the budget.
Purchases should be treated similarly. Have you included that new PC in your budget? If not, think about whether it is actually a business need or just a nice to have. If you decide to go ahead and buy items that you have not included in your budget, you will need to rework the budget.
Reworking a budget when you are just starting is not a bad thing. You are attempting something new with limited information upfront, reworking to include additional information will mean that eventually, your budget estimates will be spot on.
