06 Dec BUILDING A BUDGET FOR YOUR BUSINESS
Budgeting…to put it bluntly I think it sucks. Now I’m not saying that it is not a critical aspect of business and that it doesn’t have to be done. I’m simply saying I personally think it sucks! If you’re going to start the New Year with a clear and precise picture of where your business is now and where you want it to go. You have to budget.
What is budgeting, Dictonary.com define budgeting as “provide (a sum of money) for a particular purpose from a budget.”
Budgeting is very simple. It really comes down to a few questions. How much money do you have right now? How much money do you plan to make next year? Where do you plan on spending that money? How much money is left over? The tricky part is answering those questions and being consistent from year to year on how you answer those questions. When answering these questions you want to take into consideration the same factors (accounts in your chart of accounts) so that you know you’re comparing apples to apples verses apples and oranges.
Business Budgets: The All-Encompassing View
The best and the worst part about budgeting is having to analyze your entire business. Taking a deep dive into how your business is really doing. On the lighter side everyone loves looking at how much money they have and what will be coming in. On the darker side, there lies the expenses and what it costs to stay in business.
This is the time to review each and every expense. The time and effort put forth in this exercise can possibly come back to you tenfold, depending on what you find and how well controlled your expenses are. Where are those hidden costs that get pushed through the system month after month and year after year?
Do you review all of your credit card bills – all of your credit cards and all of the charges – or do you methodically make the payments. Take the time to review those charges. Were there multiple parts on there that should have been ordered in bulk?
Business Budgets: The Very Precise View
Do you review your bank statement on a monthly basis to verify all of the checks – do you know what checks have been written, the amounts and the bill payment schedules. As the owner you should be verifying the bank statement prior to anyone else seeing it. Over time you will become more and more familiar with what checks are printed and the amounts on a monthly basis.
Knowing both your credit card charges and amount of checks paid out every month, provides a basis for reviewing your Income Statement expenses. The expenses on your Income Statement should be a direct reflection of all the charges incurred.
Over the years we have found, that out of all of the expenses that overwhelm businesses it is their labor costs. True direct labor costs are not just your loaded labor. True direct labor costs are your Burdened Labor Costs . Create your budget based on your true labor costs.
Knowing your costs and controlling your costs are a key aspect to creating your budget for the New Year. We all know there will be some unexpected items come up throughout the year; the more prepared you are the less of an impact those will have on the overall profitability of the business.
So what does all of this mean? That sometimes doing something we really don’t like (or may even think it sucks) may be the best thing for us and our business; giving us the ability to plan for the unexpected while creating goals to achieve. Take a deep breath and dive in, as the rewards can be overwhelming!