Let me start in answering this question with another question. Why don’t you need a budget?
If you’re in a situation where as a business owner, you’re making so much money that you can purchase anything you want without thinking twice about your bank balance; you probably don’t need a budget. Shortest blog post ever, huh? Let me elaborate.
The reason I say this ties back to the purpose of a budget through the lens of financial management. See, you budget for the sake of understanding cash flow — to better navigate how money coming in moves in tandem with money on its way out. This is financial management in a nutshell: the accurate and efficient management of money to obtain the goals of your company.
So with this in mind, let me pose another question. What are the goals of your company? If you have enough money coming in that you can meet all of said goals without any concern for the impact on cash flow, need when it comes to budgeting is probably a strong word. But if you’re like the majority of businesses out there, you need a way to measure against long-term goals in a way that’s both efficient and effective, making a budget your friend.
Tips on How to Budget Efficiently and Effectively
Okay, you need a budget. Now what?
Get Historical With Your Data
In order to manage against your businesses’ goals, you need a baseline for measurement. This translates to tracking, tracking, tracking. The more historical data you have to go off of, the better your accuracy will become in making decisions that influence future spending positively.
Monitor Each Line Item
You track every item of your P&L for a reason, so make sure they’re being purposefully monitored. On a month-by-month basis, gauge whether the line items have gone up or down and if so, by how much and when. Doing so will give more context to the numbers of your budget report, and allow you to more readily see the impact each cost and saving has on one another.
Review Current Vendors and Client Base
In addition to strategic planning and employee bonuses, at end of year, it never hurts to take a step back and review your current base of clients and/or vendors. In relation to the goals set forth for the year ahead, give some thought to whether their intended purpose is being served at a reasonable price. If not, this is the time to either renegotiate terms or drop the dead weight completely, freeing up resources for potential new partnerships in the months to come.
Put It To Work
Your budget is only as good as the active role it plays in holding you accountable. A budget is not a tool you set and forget — it lives and breathes with your company. Keep your numbers up to date in Quickbooks, run regular reports for actual vs. budgeted spend and use the insights to proactively set your company’s course towards making those goals a reality.
Out of time to budget for budgeting? Let Officeheads lead the way with financial tools and services to meet you at every step along the path towards business success. Contact our team today for your free consultation.