Making and keeping to a budget is a critical skill both in personal life and for business owners. Fiscal discipline and money management aren’t optional if you want your enterprise to survive and thrive. Here are ten tips on keeping your financial ship afloat.
1. Budgets should be (at least partially) public information.
A lot of business owners keep their budgets a strict secret. Bob down on the loading dock and Carol on the sales floor don’t need to know each other’s salaries, and they don’t need to know how much the company spends on rent, right? Well, that’s partially true. Some elements of your company’s budget (like salary information) is private and should remain so.
However, if Bob knows how much you’re paying for rent, he might tell you about the building his uncle just vacated that’s looking for a new tenant and is desperate to close a deal. If he doesn’t know about your need, he isn’t going to bother. Putting the financial basics out there for your employees to know and understand feels risky, but it can have payoffs, like increased buy-in and improved information flow in both directions.
2. Be pessimistic about income projections.
When planning the next quarter and the next year, avoid the temptation to shade your income projections in an upwards direction to make the process easier. Instead, make it harder and be deliberately on the conservative side in your estimates. It’s a lot better to have a difficult budgeting process followed by an easy year where there’s more money than you expected than the other way around.
3. Be pessimistic about cost projections.
The same thinking applies for your expected costs. Assume things will cost at least a little more. For one thing, they probably will cost a little more. And again, this gives you wiggle room in your operations down the line. In a crisis, having some money sitting in the budget unused might save your business from extinction.
4. Remember that money is not your only constraint.
Budgets, at bottom, are ways of thinking about the constraints on your operations. If you had infinite money, you would operate very differently (more yachts, fewer working Saturdays.) By budgeting, you respect the realities of your fiscal situation and are able to make plans that make the best use of your cash.
However, cash isn’t the only thing you have a limited quantity of. You have limited time in your day, time on your calendar, space on your retail floor, room in your warehouse—all of these are elements that a solid budget ought to bear in mind. Don’t budget the purchase of ten million widgets that you can afford, but have nowhere to store.
5. Use the right people on your team.
Budgets are traditionally produced by managers and there’s nothing wrong with that, but remember that there are other people in your organization and they often have valuable insights into the process that their managers may not have. Bring in-line employees to at least some of your budget meetings, and get that knowledge out of their brains and into your spreadsheets.
6. Remember the difference between paper and stone.
Your budget is written on one, and not the other. Flexibility can be a lifesaver. If you’re halfway through the fiscal year and you realize that your people desperately need training but that all your remaining budget allocations are for superfluous computer hardware, don’t be afraid to make rational changes to your expenditures.
7. Budget items interact with one another.
Budgets describe fiscal and other processes that go on within your company. However, few of those processes are entirely self-contained. If you hire someone, that means buying them equipment and tools, and seating them somewhere, and paying for their benefits and training. Be aware of all the expenses that each budget line item may bring with it.
8. Don’t forget to budget for taxes.
Remember that when you’ve earned $10,000, that doesn’t mean you get to keep $10,000. Taxes and fees are going to eat part of your revenue no matter how your business is structured. Be aware ahead of time and don’t get caught by surprise.
9. Use the 10 percent rule.
Almost anything can be cut by 10 percent without ruining it. Whether it’s the entertainment expense for the company party or the amount you spend on new tools, if a budget is tight and you just can’t find specific things to eliminate, try cutting everything by a bit and make that work.
10. Use the power of free.
There is so much free software and so many free services out there today that your company is probably not taking advantage of. Stretch your dollars by opting for free solutions, when those free solutions work well for your company. Remember that money isn’t the only consideration. If the free option takes more time and time is in short supply, then the “free” option may end up costing you.
Looking for budget-friendly tips specifically related to marketing? Download our free eBook below:
