For most small businesses, budgets, like diets, are about deprivation. And that’s why neither work in a lot of cases. The core benefit of a budget is that it creates boundaries which free you to focus on what’s essential. However, there are a number of roadblocks that may arise when planning your financials. Here are 8 factors to consider when creating a budget for small business.
Getting lost in complexity
Budgets are simply a financial plan which accounts for expected income and spending over a set period, usually a year. They are re-evaluated to ensure they are on track. There are three kinds of budget balanced, surplus or deficit. As a small business, you need to aim for profit, but not always. There are lots of fancy words used around budgeting which scare and confuse. Stick to the basics you can understand and control.
The temptation to mix your personal and the business’s money
Yes, it’s a small business, and you may be the sole employee running it from home, but don’t mix up your family and your enterprise’s finances. The household budget may have very different priorities to your business. Do not rob Peter to pay Paul. The word budget is derived from the French name for a leather briefcase. Keep your small business finances separate in an imaginary locked briefcase. Do not raid it for household expenses.
Mistaking a budget as a tool of restriction and not liberation
Budgets can appear as being synonymous with deprivation and restriction. But a budget is all about telling your money what to do, rather than letting it tell you what to do. You will have a business plan and goals, so a well-constructed budget should feel liberating, not restrictive. It will provide stress relief rather than add to the things you might worry about.
Believing your budget is a destination and not a journey
You got the end of the financial year, and you “made” the budget. Phew! But never forget a budget might change, but it never ends. It’s a constant process of document, analyse, plan, track and then repeat. In short, note where you are spending, examine it to see where you could get more out of your money and be honest about how you might boost revenue and plan your next steps. Finally, track how you are going and amend accordingly.
Kidding yourself you’re not the kind of person or business who needs or can keep to a budget
Everyone and everything relies on some type of budget. A sound system doesn’t just mean willpower, lots of math and massive spreadsheets. It’s based on what matters to you as a business leader, what you want your business to achieve and how you want to live your life. Understand your personality, your values and your goals. If they are aligned with your small business’s ambitions, your budget should be manageable.
Focusing on cutting to make the budget
Start not by cutting but by identifying where you spend and how you can generate additional revenue. Identify actual waste, be that in time, money or worry. Anything which isn’t giving you value is a drag and should be dumped.
Not keeping technology in its place
There are literally dozens of apps that claim to track your spending or improve your budget. But automation without awareness can lead to a worse outcome. The real secret to better budgeting is knowing what you earn and spending and how it makes you feel. Sure, use technology but don’t discount the power of your sensibilities and intuition.
Losing a sense of proportion
Too much budget advice focuses on the small stuff. Suppose there have to be cuts, tempting as it may be, instead of trying to cut a large number of little things, focus on more significant cuts to the bigger items. It will be quicker, more transparent, more effective and maybe, in the long term, less painful.
These days, most small businesses suffer from “choice overload” which can lead to stress and financial struggles. A well-constructed spending plan is like a protective financial bubble that simplifies your businesses movements and alleviates stress.
