Creating a budget is vital for the financial health and longevity of your small business. However, it can also be a daunting task.
From monthly budgets to vendor choices, there are many elements to plan for and incorporate into your broader budget. Here are seven strategies you can use to develop a strong business budget.
Know your numbers and plan with purpose
Yvonne Cobb, CPA and Founder and CEO of TakeAway Tax, recommends small business owners take a goal-oriented approach to financial planning.
“The key to effective budgeting is setting a specific financial goal — ‘finding your number’ — and working backward,” Cobb explained. “This … offers a clear benchmark and ensures that all decisions contribute directly to the business's goal.”
[Read more: 5 Steps to Creating a Budget for Your Startup Business]
Be strategic about every expense
According to Karla Dennis, an Enrolled Tax Agent and Founder of KDA, Inc., small business owners often spend money without an expectation or purpose for that expense. She advised asking yourself, “What will this expense get me in return?” before making any purchases.
“Ensure every dime being spent is going to get you to your goals,” Dennis said. “This will help eliminate expenses that are not needed. Then, make sure you stay within the budget you set.”
Start with a month-to-month budget before planning longer-term
Ryan Carrigan, CEO and Founder of MoveBuddha, recommends small businesses start with short-term or activity-based budgeting before looking too far into the future. The process of tracking every cost-related activity can help you plan your future budget in whatever increment you choose.
“It can be beneficial to analyze all costs and profits in the beginning,” Carrigan said. “Then create a monthly budget until you grow enough to create a sustainable budget that can last a quarter, six months, and eventually annually.”
Ensure every dime being spent is going to get you to your goals.
Karla Dennis, Enrolled Tax Agent and Founder of KDA, Inc.
Build a zero-based budget
Every dollar counts in a small business, said Jason Manar, a former FBI Agent and CISO at Kaseya. That’s why he recommends adopting a zero-based budget strategy.
“During my time in the FBI, I found most successful small businesses used a zero-based budget,” Manar told CO—. “They built the budget from scratch, justifying every dollar spent that had to be directly correlated to necessities. Those businesses that were transparent and involved in all departments had a more comprehensive understanding of the needs and priorities of the company.”
Choose your vendors wisely
Michael Sawyer, Operations Director at Ultimate Kilimanjaro, noted that small businesses should take great care when choosing which vendors to partner with.
“Just because you have an opportunity doesn’t mean you should jump on it,” Sawyer said. “You don’t want to invest and waste money on a poor partnership.”
Before signing any contracts, Sawyer recommends taking the extra time to determine the quality and values of any prospective vendors to ensure they align with yours to make a positive impact on your business.
[Read more: 5 Cost-Cutting Tools For Small Businesses]
Be flexible
Rigid budgets that account for every dollar and cent aren’t necessarily the best strategically, according to Jan Brandrup, CEO of Neurogan.
“Choosing a flexible budgeting strategy has been most beneficial for us, and it is helpful because it’s adaptable and allows you to track the ups and downs of spending and revenue,” Brandrup said.
Although it’s great to have a budget that is planned on a monthly basis, flexibility can help manage any unexpected expenses that pop up.
“Having a flexible budget that forecasts as opposed to structures your money will ultimately promote and drive profit,” said Brandrup.
Review and adjust your budget periodically
A good business budget isn’t something you set and forget. Sofia Perez, Owner and Content Manager at Character Counter, says business budgets — whether yearly, quarterly, or monthly — should be reviewed often.
“You need to have your eyes on the dollars at all times,” she said. “I recommend planning two months in advance, [including] expenses that could throw off estimated revenue as well as gross profit to ensure the company’s money is accounted for.”
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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