Clutch Survey Reveals Small Business Budget Problems

Budgeting has always been an essential practice for small businesses. And when businesses fail, the lack of a formal budget is often a contributing factor. As former Secretary of the Treasury Jack Lew once said, “The budget is not just a collection of numbers, but an expression of our values and aspirations.”

A new survey from Clutch, however, reveals that 61% of small businesses didn’t have a formally documented budget in 2018. To get this data, Clutch asked more than 300 small business owners whether they have a formal budget, whether they stick to their budgets, and what they expect their budgets to help them accomplish.

Turns out, the smaller the business, the smaller the likelihood of having a budget. For example, only 26% of small business with 10 or fewer employees had created a budget. The percentage actually jumps to 79% when you look at small businesses with more than 10 employees.

This is partly due to the fact that businesses with a very small number of employees have fewer “cooks in the kitchen,” and it’s easier to monitor spending. But relying upon unofficial financial tracking will only get these businesses so far. And while some of these small business owners may even fear that a budget would hinder them by being too rigid and preventing growth, budgeting is essential to identifying challenges and finding solutions. It’s the best way to ensure your business evolves properly.

“Having a budget keeps everyone working toward the same goals and helps scale your business,” says Wanda Medina, co-founder and CEO at Maventri.

Of course, a formal budget is just a collection of numbers and you’ll only see the benefits if you stick to it. Clutch found that 37% of small businesses surveyed had spent more than they budgeted. Despite this fact, only 20% of them plan to increase their budget in 2019.

When Clutch asked small business owners what their biggest financial challenge was in 2018, the most common answer was “unforeseen expenses.” This is hardly an unexpected response, as financial surprises lie in wait for all entrepreneurs. And if budgets aren’t given flexibility to account for them, then there will inevitably be turbulence.

So how do you create a solid, yet flexible budget? The Harvard Business Review recommends making your budget “ambitious but realistic.” Your emotional aspirations may lead you to anticipate huge growth in revenue, but it’s important to use data and critical thinking to find a proper balance. And while it’s important to look at all the possibilities, the important thing to remember is that you shouldn’t “map out a budget that you can’t meet.”

To give purpose and direction to your budget, focus on 3-5 key business growth goals. They will serve as your compass throughout the year, because your budget is actually the lifeblood for these goals.

Finally, don’t just file your budget away once it’s completed. Most experts say you should be reviewing your financial performance monthly, measuring your results against your budget. These regular check-ins will help you see what’s working and where you need to make real-time adjustments.