Some Budgeting Tips

Ah, the budget. For some, it’s an absolutely essential part of the business; there are folks who wouldn’t even dream of starting a business without a detailed budget, let alone running one without everything carefully accounted for. For others, it’s a dreaded chore; they see budgeting as guesswork, drudgery and, worst of all, almost pointless. The second type of person figures circumstances change throughout the year anyway, so just have some capital on hand and pay expenses as they come along! I hate to be the person to break it to you, hypothetical budget hater, but budgets are, in fact, a really useful way of projecting costs and finding efficiencies. Not to worry; we’re here to help.

The first thing you have to do is get rid of your “budgets are boring/useless” mentality. There are a ton of different ways you can budget, and nobody is saying “you must follow this budget to the penny”; they’re simply metrics you can use to estimate future expenses and revenue. You can budget based on cash flow, you can budget based on your estimated net income, you can have each department create a budget and aggregate all of them together; the sky’s the limit for creative budgeting. It can be fun and useful, so don’t think of it as a chore!

You should tailor the way your budget is created to your own needs. Retailers, for example, shouldn’t just make a yearly budget and be done with it; after all, the Golden Quarter is when most of your expenses and income will occur, so you should probably run a budget at least quarterly. While that could be to your advantage, a weekly budget might be excessive paperwork for no good reason; you want to balance efficiency with information when it comes to running budgets.

Budgeting is about projection; that means you shouldn’t be pulling numbers out of nowhere. Let’s say you want to reduce the cost of marketing; don’t just decide “marketing has to be reduced by 10%” without evaluating your goals for the year! Look at the expenses you had last year, and evaluate where they came from; if you ran a new promotion, the research and development costs can be eliminated from the budget; see what that leaves you, and find anything else that might reduce expenses. An unrealistic goal serves to demotivate your employees and put you over budget, and not much else.

You want to have a good team to help you create your budget; you might get help with bookkeeping, an accountant, and the heads of all of your departments to participate. You might also consult with non-managerial employees; they can help you determine what little costs go into the budget, like how often they seem to run out of pens, or how frequently machinery in the warehouse tends to break down. This is all especially useful information if this is the first budget you’re running, because you won’t have other expenses to compare to!