Creating and Maintaining a Budget for Your Business
by Bruce Tannas
A wise businessperson once told me that an entrepreneur’s top line (sales) was their bragging rights, but the bottom line (profit) represents their lifestyle. Many entrepreneurs just focus on their top line number and often fail to understand that it is the bottom line that truly matters. Profits don’t just happen; they need to be planned for. Through creating and maintaining a budget for your business, you can control your costs and plan your profits in your business.
According to Huda Farah of Balanced Figures Bookkeeping, “a budget will help your business to have measurable goals for sales, costs, and profits. It will also help keep emotions out of business decision making and provide a means of checking your progress toward your goals.”
A Budget Should Reflect Your Goals:
Your business’ budget should reflect your goals. So before setting your business’ budget you need to think about both your personal and business goals. Many business owners set business goals that don’t account for personal goals. You need to consider both the personal and business aspects of your life as you develop your business goals (for more on that, see this article on goal setting).
Remember that goals need to be SMART (specific, measurable, achievable, relevant, and timely). A budget can help to ensure that your business goals are measurable and timely because many goals can be converted to a number to achieve such as sales, margins, costs, and profits as well as a time to achieve them such as a month, quarter, or year.
Set Your Budget:
Now that we have begun to quantify our goals we need to check if these numbers are realistic. Most industries have standard financial results. Whether that be average margins or costs or profitability these numbers can be obtained through industry associations or the Government of Canada. Many industry standards can be found by running an Industry Report from Statistics Canada (note: you will need to search for your industry first. Also, you should choose “incorporated business” to compare too so you get the full report of industry results). Reviewing the industry data, you’ve gathered, will give you a place to compare your goals and budget figures to.
You should also take the time to assess the current and potential future conditions in the marketplace. Speak to your suppliers about whether they see the market expanding or contracting. In b2b businesses speaking to customers about their plans can also provide a good indicator of their future business intentions as well.
Whether you have a small or larger team of employees and managers, you should consult with them as you develop your business budget. They will likely have a good sense of the supply chain costs and market demand as they are involved with it daily. Also, when you empower managers and employees to contribute to the budget, you’ll get more “buy in” by them achieving the budget targets.
You’ve developed goals, quantified them into the budget, reviewed industry standards, and consulted your suppliers, customers, and employees about aspects of the budget. Now you need to put that together into a coherent and realistic budget for your business. Whether you write it down, put into a spreadsheet, or into an accounting system the important thing is that you complete a budget for your business.
Review Progress on the Budget and Update it for Current Conditions:
A good budget is a living document that needs to be reviewed and updated. So, you need to schedule regular reviews of your budget because if you don’t schedule regular reviews, they may not get done. A key part of these reviews is to look at progress to date on your business goals. Are you on track or has something changed? If something is not on track, Huda Farah advises that “it is important to look at the root causes of the issue” and from there you can formulate ways to correct it or pivot accordingly.
Regular budget reviews can be an important means of reviewing progress with team. It also is a good way of having accountability from managers and employees for the sales and costs within their control.
Once you have reviewed and analyzed your budget progress, you’ll need to make adjustments for current conditions. This is where Huda says that because “a budget takes emotion out of decision making, you will have an advantage in successful planning going forward.” Just ensure as you adjust your budget for conditions and keep in mind your original goals and objectives including planning for a profit.
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