Your Business Budget
Your Business Budget as a Guiding Framework for Building Financial Success
As you get caught up in the day-to-day demands of your business, oftentimes you can lose sight of the bigger financial picture or where you see your business in the long term. Without long-term planning, how can you be sure you are making the right financial decisions for your company? How can you be sure you are turning a profit or finding growth opportunities in your business?
In short, you can’t know — which is why establishing a business budget is such a crucial component in building a successful business.
So let’s break down what a business budget is… and how it can be utilized to navigate your financial future.
A budget is an outline of your business’s finances; it is used to assess your income, expenses, spending, and overall business performance in order to ensure your business’s financial needs are met. Once you create your business budget, you can identify the profitability of your business model and ensure you are in control of your finances.
As you develop a budget, you need to consider both historical financial information and what you know to be true about your business — only then can you make informed assumptions about your business’s financial future; think of your budget as a financial roadmap that informs your decision making.
According to Alicia Fowler CPA, CA, MPAcc, budgeting is a process. Creating a business budget is not a one-and-done task, rather you are constantly monitoring your business’ performance to best allocate your finances and spending limits. There is always going to be new information coming in that may impact your business budget — you may get a new employee, a new client, or you may purchase more assets, so your budget needs to be flexible.
But did you know … 2 out of 3 of businesses do not even have a business budget?
Furthermore, a study by U.S Bank found that 82% of businesses fail because they don’t have a proper cash flow projection, a result of not creating a proper budget.
So… If you do not have a budget for your business yet — you are not alone. But it is something you need to prioritize in order to reach financial security and long term profitability in your business. Alicia outlines several reasons why women may neglect developing their business budget:
Discomfort around the process — not understanding the financial tools
The process can be time consuming
There is often an emotional attachment surrounding budgeting, associated with the fear of failure, fear of their business’ numbers.
Alicia also discusses some of the common budgeting mistakes to avoid when constructing your business budget:
Making a budget plan that you don’t understand
Making a budget that is unrealistic— either too overly optimistic, or too conservative with numbers
Making a budget and then simply not using it or monitoring it
Now that you understand the importance of setting up a budget and some of the reasons women avoid budgeting, here are some tips to create a successful business budget:
Keep your budget simple by using the tools that you understand. Don’t overcomplicate things — just look at the money coming in and going out — and be sure to monitor your budget on a monthly basis. If you are ever confused on creating a budget that fits the needs of your business, we encourage you to turn to a financial advisor to help guide you. They will look at your historical financial statements and at your business’ expenses and income, and then outline a personalized budgeting plan that will help you reach your financial goals.
A budget is one of the most valuable tools to help you understand what their business needs in order to grow financially; it is a plan to help you manage your money and track your finances — and without a budget — you are putting yourself at risk financially.
Your business budget allows you to see what can happen in your business and helps you make more efficient financial decisions that will set you up for success. You should be inputting relevant financial information into your budget including production costs, expenses, profits, and even shipping costs, in order to more accurately allocate your finances.
Some of the common budgeting mistakes include creating a budget that is simply too hard to understand, being too unrealistic with your business finances, and not utilizing your budget to its full capabilities.
We encourage you to monitor your budget monthly and check in regularly with your business, ensure you are inputting accurate financial information into your budget, and to turn to a financial advisor if you are ever overwhelmed with the budgeting process.
The Finance Cafe would love to send a huge thank you to Alicia Fowler for sharing her remarkable insights in this week’s podcast on how to build a business budget that sets you up for financial success.
For more information on the common budgeting mistakes entrepreneurs make, how you can confidently navigate your business budget to fulfill your financial goals, and how establishing a clear, and organized budget can ultimately set your business up for success, check out The Finance Cafe podcast as well as our Financial Literacy e-Learning program! In Module 6 of our program, we further explore how to prepare a business budget, the connection between your financial statements and budget, and how to forecast your business’s cash flow.
Here at The Finance Cafe, we want you to get to a place where you feel empowered by numbers and the stories they create for your business. We hope you join us here weekly to learn more about unlocking your full potential as an entrepreneur and finding the confidence to uncover the financial story of your business, one number at a time.
Shannon + Shauna
The Finance Cafe