3 Ways to Manage a Budget Efficiently
In a time of economic
uncertainty, the need for an effective budget is more necessary than ever. Even
in the best of times, building an efficient budget is intimidating enough.
It takes time to build a
budget, and in the end, you should aim to create an organic file. This means,
it should be able to grow with your business and its needs; fit into the
economy’s status and meet market conditions.
Here are some tips on
how to create and stick with your budget so you can avoid a trial-and-error way
What should be in a
small business budget?
A budget is a financial
tool, usually applied within a defined period that is by quarter, biannual, or
annual time frame.
A small business usually
Expected sales to cover
your business costs
Identify the amount you
want to put back into your business.
Set a goal to hit to
determine when you can hire extra staff.
How to create a budget
There is no one formula
for creating a budget. It often requires the consideration of specific business
conditions. But these steps will help you start.
First, Look back to past years for information. Three to four
years of historical data will allow you to see trends such as seasonal peaks
and expense fluctuations. This set of information will allow you to create a
more accurate and true budget.
After you have gathered the appropriate data, you can now
approximate sales and set profit goals. Make connections between the sales and
the expenses to close the gap between estimates and actual numbers. While these
predictions won’t be perfect, starting at a reasonable estimate will allow you
to build and eventually create the most precise budget.
Next, identify fixed and variable costs and determine which of
these expenses the business can’t survive without.
When you are ready, pre-determined profit margin. Profit margin is
a profitability ratio calculated with net income divided by revenue. By
calculating this, before starting the year, you will know where you want to be
by the end of it. Everything else, you can adjust accordingly.
Tips to maintain your
Consider enrolling in financing and budgeting courses. Whether you
are a new start-up or a seasoned entrepreneur, there is always something new to
learn. In a digital age when you can connect with literally just about anyone,
you are exposed to a limitless pool of talent and experience. It’s just waiting
for you to tap it.
Make it personal. Manage the budget as if it is your own. It’s
crucial to stay on top of your expenses.
Manage your expenses and adjust accordingly. When you are starting
a new venture, everything looks exciting and the desire to start on projects
will be overwhelming. But the key to every venture is planning and smart
patience. This is where it is important to break your big plans into small
achievable chunks that are doable in a realistic time frame. Planning is
important so you know when you need to spend and when you need to save.
When you’ve determined the expenses you are willing to spend,
revisit the plan to assess if it is still relevant or if new opportunities
present themselves. Consistent and timely revisions are necessary to update
your operating expenses, labor needs, and inventory.
Keep proper documentation and organize your books. Clean books
allow you to see financial patterns better.
Take advantage of technology. There are numerous cloud-based
systems that can help business owners keep track of their finances.
Make it a team effort. By involving your team in the creation and
maintenance of the budget, tracking it will become easier. Teamwork will give
your employees a sense of inclusiveness that fosters a better sense of
responsibility and accountability.
Analyze your business expenses, decrease or terminate those that
are not creating returns or those that do not affect revenue in any way.
Reconsider supplier contracts that might be renegotiated.
Because of the new normal, it will take more time for your budget
to adjust to the new environment. Now is the time to look back at your business
plans and determine if your budget has affected them in any way. Have you
achieved your five-year goal? Haven’t you?
If you are having a hard
time adjusting, here at Mehanna Advisors, we specialize in tailor-fitting
budgets for your business-specific needs. Reach out to trusted experts, after
all, while it’s good to make mistakes, it’s better to learn from others.