Staying Afloat Financially: 7 Steps To Creating A Business Budget
Updated: Dec 4, 2020
Photo by Micheile Henderson on Unsplash
Former NFL player Peyton Manning led the Indianapolis Colts to the 2017 Superbowl. Some experts say Manning executed one of the NFL's simplest playbooks. A playbook is the collection of plays a team can execute during a game. So, what is the business playbook? Business experts would say the budget—a budget details how your organization will perform for the year. Budgeting is a thoughtful process identifying resources needed to achieve business goals. Creating a budget may seem daunting. Therefore, breaking the budget into small steps can alleviate the stress in producing a plan you can utilize. Here are seven steps:
Identify your business goals. Not only include a financial plan but list operational goals. Ensure your goals are specific and attainable for the organization.
Review historical data. Run your financials for the last one to two years. If you are a new startup, research your competitors. Reference USA is a database with business and residential financial data in the United States. You can access it free through your local library.
Project revenue. Ensure your budgeted revenue takes into your sales cycle. Identify months where your revenue may fluctuate up or down.
Project payroll. This step can be tricky because you have to consider factors such as the candidate's experience and the market. You need people to achieve your goal but be realistic with your payroll budget. Maybe you cannot pay the market salary but offer other perks such as a cell phone plan, discount at fitness centers, year-end bonuses, job sharing, or flex hours. You can also consider contracting out work.
Add up your non-payroll expenses. These are your variable and fixed costs. They can be supplies, rent, business insurance, taxes, or utilities. Ensure that you budget quarterly and annual expenses accordingly. Also, make sure your budget includes price increases for expenses such as insurance or utilities.
Project a contingency fund. Unexpected costs are going to pop up. These costs can be repairs, the purchase of new technology, or they can also be for growth. The idea is to budget 10% of your annual revenue for a contingency fund.
Revisit your budget. Monitor your budget versus actual each month. Many organizations create a budget but do not compare against actuals. Use the budget as a tool to make decisions throughout the year.
As the year progresses, items will change. Therefore, adjustments need to happen to achieve and reflect the accuracy of your business transactions. Some organizations will change their budget throughout the year. Well-established organizations have a budget and forecast. But what is the difference between the two?
Your budget is your baseline on what you want to achieve. Forecasting estimates are based on the actuals that have already been incurred. Both terms are used interchangeably. Be patient with your budgeting process. You'll become more comfortable with the process as you continue to commit to creating and utilizing the budget. If you want to win in 2021, put in the work now!
Subscribe to the Digital Orange Juice for juicy ideas and the people who fund them. You can find out about our next pitch competitions here. Also, be sure to join our new community BGV Connect! Knowing whether your business or personal finances are healthy is crucial to your overall success and well-being. Linda Diakite Karressy, the owner of Insight Financial Group, makes accounting fun! She isn’t your stereotypical zero-personality accountant who wears the traditional green shade. She loves breaking down accounting to its lowest denominator so that everyone can grasp it. Plus, Linda’s a natural teacher. As a seasoned accounting professional, she understands how to engage adult learners and hold their attention.