“A weekly budget is just something to explain why the money ran out about Tuesday.” – Ervin Glaspy
Charlie S. loved being in business, but hated bookkeeping – he found it tedious and boring. For five years, he had managed his small company in a loose, informal style without a budget. Even with the occasional cash crunch and small losses for the past two years, he found excuses to postpone the “chore.”
Are you like Charlie? Do you have a budget for your business? I wonder, as the majority of small businesses with annual sales of less than a million dollars do not. Many entrepreneurs acknowledge the need to create a budget, but fret that they don’t have the time to do so. They complain that the pressures of day-to-day operations leave little time for planning and analysis. If you are one of these “never enough time” entrepreneurs, perhaps, I can change your mind in the next few paragraphs.
First, let me dispel the idea that a budget is a straitjacket that you are wrapping yourself in – taking all the fun out of your business. Or that budgets are only for big companies with loads of cash. Or perhaps you feel that as you struggle week-to-week to meet your payroll and bills, how are you expected to budget? Wrong! Sure, a budget is difficult – difficult to put together and difficult to follow. But it is just as necessary as your auto insurance. It is a one of the important management tools you need to make money, not just a limit on your spending or a wet blanket on your desires.
To start with, a budget is not cast in stone. It is a flexible plan of action. Things change; you land a big account, an unusual opportunity pops up, or some misfortune befalls you – and you revise your budget in light of the changes. Look at it as a flexible planning tool – not sacred scripture- ready to help you manage your business.
Putting together a budget makes you focus on your financial wherewithal. Have you ever attempted to put wishful thinking on paper? Crafting a budget does away with fanciful thoughts about the future of your business and forces you to be realistic. A well thought out budget contains all your expenses and sources of income. It forces you to think through every action you take and how it affects your bottom line. Your budget in many ways is a silent partner with a cool head determined to keep you on the right track.
A budget will help you to make decisions about spending money, establishing prices, seeking certain profit margins, hiring and firing employees and so on. It is the financial plan of your business based on your decisions. As you calculate your budget, you are making those decisions. You are deciding how much to spend for what purposes and how important they are to the business. A budget creates a perspective for you. As you will discover, a single expense may not seem like much, but when viewed in relation to all of your expenses, that’s another story.
To the entrepreneur just starting out, a well-thought out budget can be an important aid to you during your difficult first year. Think of a budget not as a list of expenses and income, but as a positive thought process that forces you to make decisions and establish limits over your actions. Such a disciplined approach to your finances and your style of management can be a strategy for success!
If you hate number crunching that’s ok, help is on the way. There are many software programs that will guide and do the work for you. Most small business accounting software programs contain a section on budgets that will take you step by step through the creation of yours. And don’t overlook the business plan software, which features budget preparation. Another option, are the spreadsheet software programs, such as Excel, which can take the drudgery out of the detail.
With all the software help available to you, your excuses to postpone this presumed unpleasant task are dissolving. To use a trite phrase, it is time to bite the bullet. Once started you will be glad you did. I know once I got my arms around the project, my reaction was, “Why didn’t I do this before?”
Article © Copyright 2002 Dr. Paul E. Adams. Syndicated by Paradigm News, Inc.