No matter now small your business is, you’ll gain a lot by budgeting. When I started in business 30 years ago I didn’t pay much attention to my budget as long as I had a positive bank balance. That was a huge error. As a result of ignoring my budgeting I didn’t really know what was working or what needed my attention. In fact, I didn’t really even know if my business was profitable or not or if it was worth it to be independent or not until I started tracking my numbers. I was lucky. Many people who ignore budgeting end up going out of business because of it. Don’t let this happen to you Pilgrim. Let’s start this budgeting party right now.
1. Suit Up With The Right Tools
Budgeting is simply taking what you expect to spend each month on your business and comparing it to what you actually spent.
This means you have to:
a. Keep a record of what you expect to spend.
b. Keep track of what you actually do spend.
You can do this with pen and paper, a spreadsheet or a software package. The first two options are free. The better software packages cost money. But I recommend using a software package.
Given the importance of the subject, I wouldn’t worry about the cost. A good program costs somewhere south of $80. If you figure you’re going to use it for several years, you can consider the cost a non-issue. (I’ve been using my same software package for over 15 years.)
If you get a program that does the job, and it’s one you like and use, it’s worth it. In fact, if you do end up buying a program, you’ll make your investment back several times over each month. That’s how much money you’ll save. At least that’s been my experience.
I’ve been using QuickBooks for years. I started using this program because it was the one my CPA recommended. It’s a great program for business and one your tax preparer will love too because they can just download your file and use it to prepare your taxes. That should save you at least the cost of the program in lower tax prep bills.
The program is great because you can (and should) download the data from y0ur bank and credit card companies right into the software. You can also integrate it with your tax preparation software if you do your own taxes. It may take you some time to learn how to use it but you’ll probably master it much faster than you imagine. If you do get frustrated, hire a bookkeeper to show you how to use it. Problem solved.
3. Hire and fire a Bookkeeper.
If you know that you won’t spend the time to learn a program and/or won’t update your budget each month, hire someone who will do this for you.
You can easily find a bookkeeper to come in twice a month to update your books. This will cost you about $100 a month. If it’s between spending that money and not having a budget, it’s the best $100 you’ll ever spend on your business.
But go a step further. Tell the bookkeeper to spend an extra hour each visit and teach you how to use the program. In order to get the real power of the information, you have to be on top of your budget. And the only way to do that is to do it yourself – at least for awhile.
When I started my business I had a bookkeeper do my books. Then I took over the task myself in 2008 when the market got wobbly. This was a game changer because it helped me see where I was wasting money and where I needed to actually spend more. Once things became more stable, I gave the task to a person on my staff but I still review each transaction at the end of the month. Because I did it myself, I have a better awareness of what to look for.
Ultimately, if you have a small business, you need to be on top of where you are making money and where you are spending money. Following your budget is the only way you’ll get this information. The task is too important to put off.
It’s not difficult and it won’t take you long to master it. Are you budgeting for your small business? How?
Khaleef @ KNS Financial says
Very good list. So far, I’ve been using Quicken Home & Business (my business is VERY small), but I want to transfer over to Quickbooks in the near future. My business is financial advising and tax preparation, so I think I want to get familiar with Quickbooks and then offer bookkeeping as well.