A well thought out budget is the backbone of any small business. Operating without a budget is the first step toward disaster. However, even if you have made the time and effort to put together your best estimates of income and expenses in building your budget, sticking to that budget has its own challenges. Having a budget is very similar to knowing what you should be eating every day and not straying too far from those parameters. Splurges need to be compensated by cutbacks elsewhere.
So, what are some ways to keep your business on track to achieving your budgetary goals? For a start, make certain that there is a category in your budget for unexpected expenses. Some people call them miscellaneous expenses or emergency funds. Whatever you decide to call them, make certain that there is some wiggle room in your budget for unanticipated costs that might occur.
When do you get to tap into that extra money in the budget? Plan on having it as a reward to buy something special for the business at the end of the year. When something unexpected does come up, give careful thought to whether it is a want or a need. If your taxes get increased, that is a need. To stay in business those taxes need to be paid. If a good deal comes along for re-painting your office; that is a want (unless the paint is peeling off the walls). You don't have to have your office painted just because this is the deal of a lifetime. If there is extra money in the office upkeep budget, go for it. But don't use the emergency funds for that.
Part of making the choice of what to spend your funds on requires stepping back to see how the overall budget is faring. If your business is facing tough times, you need to be watching every dollar that goes out of the business. If you are having a banner year, a few splurges that further the best interests of the business can be considered. Note that the key words in the last sentence are "further the best interests of the business."
This brings us to the need for having a good way to monitor on an ongoing basis how close the business income and expenses are to the budget. There are a large number of computer programs available to help a business keep track of income and expenses. Some are even industry specific, generating specialized reports for the particular cash flows of that type of business. Get a good computer program, keep it up-to-date and look at the reports generated regularly.
The most important report to keep an eye on for your budget is cash flow, especially if your income is seasonal. Cash flow problems are one of the biggest challenges for small businesses. You need to be able to meet expenses until cash comes in to cover them. If all of a sudden your customers are late in paying, you may have trouble covering payroll or inventory (causing a visit to the emergency funds account). Keeping an eye on what is happening can give you time to figure out solutions before they become major problems.
Expect your budget to have some unexpected variability over the year and be prepared to correct it as you go along, as necessary. Remember that budgets are based on best calculated guesses. We live in a changing world. As changes occur, we need to adjust accordingly.
Following your budget can actually be fun if you don't think about it like a strict diet that doesn't allow you any sweets. Instead, think of following your budget as a game in which the reward will be deciding what you can do with those extra funds at the end of the year.
