The word “budget” seems to oftentimes cause people to run the other direction while plugging their ears. It’s the elephant in the room no one wants to talk about, but in order to run a successful business, you need to have a good business budget. Keeping a good budget is the glue that holds your business together and should not be overlooked. If you’re serious about running a business, here’s what you need to do to create a great business budget.
Separate Your Bank Accounts
Do you have a separate bank account for your small business or is it tied directly to your own personal finances? If they are in any way connected, separate them now! If you want to be able to track your business specific expenses, it will become increasingly more difficult to do the more you grow. If you meet with a client for lunch and then eat lunch with your spouse that month at the same place, how will you remember which transaction belongs where?
Having separate bank accounts isn’t just for your own personal sanity, but it’s a safety net between you and the IRS come tax season. The more separated your personal life is from your business, the safer you are—especially if you are a sole proprietor. Get an EIN and make everything officially separate.
Use or Make a Spreadsheet
If you want to keep your business on track, you can’t expect to do so by simply saving all of your receipts and putting them in the top drawer. You need to create some type of tracking system that you can adhere to and really get on board with when putting together a good business budget. Whether that means downloading templates from a 3rd party source or creating your own, this should be at the top of your priority list.
Give Yourself a Cushion
How many times in your own personal life have you thought to yourself, “[insert dollar amount here] will be plenty for this” only to finish the project and realize you were way over budget? Probably anyone who has ever done repairs or renovations on their house will know exactly what I’m talking about. Unfortunately, things oftentimes end up costing more than we initially plan, and you need to account for that in your business budget as well. Give yourself a cushion so when that extra expense inevitably rears its ugly head, you will be prepared.
Constantly Reassess Your Budget
A small business budget is not a “set it and forget” it type of budget. No budget should be that way. Every month your business needs will change, and so should your budget. Some months will have higher profits than others, and some months will have large unexpected expenses to account for. Be careful to analyze and account for any potential seasonal changes in your industry as well so those don’t hit you by surprise.
Find Areas You Can Cut Costs
Having all of your finances laid out in an organized fashion will help you to realize areas that you may be spending more than necessary and help you to reduce those expenses. For example, if you’re diligent about paying on time, you can find certain credit cards that will actually save your small business money. If your business requires frequent travel, open a business credit card that gives you frequent flyer miles or hotel points and then make the majority of your purchases on that card. You’ll be surprised at how quickly those points can rack up.
You may also consider buying your supplies in bulk or seeking out alternative vendors to purchase from who can offer the same inventory for a reduced rate. If you’re really good, you may even be able to get the two (or more) to compete for your business and drive the cost down even further!
As a small business owner, sometimes one of the hardest things to remember is to actually pay yourself, as part of your business budget. Yes, your business is incredibly important and you want to do everything in your power for it to grow and succeed, but you need to be able to live as well. Not only that, but it’s important to realize that putting all money back into the business isn’t necessarily the best idea. You need to be able to take care of yourself if you want to be at full capacity to successfully run your business. During the startup phase, you can pay yourself the bare minimum to survive if you’d prefer, but don’t work for free.
There is no one right way to create a business budget, but you should find a method or system that works best for you at your small business and stick to it. Remember, a business budget is dynamic and will change from month-to-month so make sure you are constantly reassessing your budget and expectations. Once you’ve got a good system in place, keeping a budget will actually feel freeing rather than restrictive and will pave the way for a better future for your small business.