Business Budgeting? Save Money By Asking These 9 Questions
When it comes to a growing new startup, just about nothing matters more than how the business is spending and earning its money. And while many aspects of a new business can be unpredictable, uncertain, and even a little fly-by-the-seat-of-your-pants, the finances of a business should not be one of them. From making educated financial decisions to knowing exactly where every penny in a business is going, understanding business finances matters, and there’s no better way to do it than with business budgeting.
With that in mind, here are questions you can ask yourself to help your business with the budgeting process and hopefully save your business money in the long run.
What Are My Goals?
A startup’s goals are going to heavily impact its business budget. These goals might be financial (for example, to see a certain percentage of revenue growth), they might be cultural (to have better employee retention), or they might be organizational (to increase brand awareness and recognition among customers). By first identifying these goals, business leaders can then work backwards from them, to deconstruct how they will be accomplished, and what financial investment is required to make them happen. For example, in order to achieve better brand awareness among customers, there might need to be hefty efforts put into the company’s marketing strategy, and therefore more budget allocation.
Research tells us that 80% of businesses fail to track their business goals. Whatever a startup’s goals are, these specific and measurable desired outcomes can help leaders start to figure out how to break down their business budget, and should be regularly tracked and updated.
How Are These Different From Priorities?
When it comes to what a business wants to achieve, goals and priorities are two different things, although they can sometimes be in alignment. For example, while a business goal might be to improve company culture among employees, this can arguably be classified as something that’s “nice to have.” On the other hand, a priority of increasing revenue by 10% might be seen as something that’s vital to the health of the company, because perhaps if that growth isn’t achieved this quarter, the company will be in a bad financial position.
Sometimes, priorities and goals will run parallel. But ultimately, when executing business budgeting, leaders need to identify both a company’s goals and its priorities, and use that information to help determine exactly how to allocate funds.
Why Does My Business Need a Budget?
What exactly is business budgeting in the first place, and why is it so important? Business budgeting is the process of creating a financial document that outlines how money will be spent and earned in a set period of time. It takes into account the overall business, as well as individual business departments, specific projects, and other initiatives. Business budgeting requires projecting how much money will be needed in different areas and divvying up the money that is available to the company as a whole.
Business budgeting should be one of the first things that founders, CEOs, and other leaders focus on when their new business or startup is up-and-running, because it can help leaders deeply understand the financial health of the company. Not only that, but business budgeting is an incredibly powerful tool for helping leaders make financially-informed decisions. And the unfortunate truth is that far too many startups and small businesses don’t have an excellent handle on their finances, with studies revealing that one of the top reasons startups fail is because they run out of money.
To avoid being in the category of startups that bite the dust due to running out of capital, leaders can turn to financial tools like business budgeting to get a firm handle on the finances of their business.
How Can a New Business Make a Budget?
One of the best ways to make a budget is to use a budget from years prior, in order to see how money was spent, what areas were over budget, and where money can be redistributed. But new businesses don’t have this sort of prior data to work with. In order for new business to create budgets, here are some things to keep in mind:
- Identify costs and expense: From one-time purchases to regular recurring costs, identifying how money is leaving your business can help you calculate how much you should be budgeting for, and in what areas.
- Estimate the business’ revenue: A rough estimate of the revenue you expect to earn is a great starting point, and can be adjusted in future budgets.
- Consider variable factors: Things like seasonality, the economy, and even social media algorithms can impact how your business is performing.
- Create short timeline budgets: When first creating a budget for a new business, create it on a tightened time frame, so it can be reviewed and adjusted if necessary. For example, a yearly budget might be problematic, because if there are issues with the budget, they might do a lot of damage over the course of a year.
- Create different scenarios: We’ll discuss this in detail a little later, but creating different budget scenarios (such as “best case” and “worst case”) can help businesses prepare for the unpredictable.
What if I Exceed My Budget?
Business budgeting can often seem intimidating because it can be daunting to predict budgeting needs, and possibly exceed budgets. The good news is that exceeding a budget is usually not an end-all-be-all scenario, and instead, is a chance to identify the spending that is already happening, make changes, cut spending, or move around money if necessary. Of course, exceeding budgets is not an ideal scenario, because it can lead to a shortage of capital and might require money to be taken from other areas of the business. But it certainly does happen, particularly with projects, with data revealing that most projects tend to come in over budget.
If you do exceed your budget, first you’ll need to identify other areas of the business budget to take funds from in order to fund the over-budget venture. You can also look for ways to cut spending on the venture that is over budget and in other areas of the business to accommodate for the spending. Then, going forward, you’ll be better informed about how to allocate money (or cut spreading) for similar scenarios in the future.
How Do I Map Out Scenarios?
Mapping out scenarios is an aspect of business budgeting that is helpful for planning for potential variables and mitigating possible future risks. It’s a way of financial forecasting that gives leaders different outlooks on certain business outcomes. A common way of mapping out scenarios in business budgeting is to prepare a best case scenario (or your dream financial outcomes), a worse case scenario (how bad can things get?), and other alternative scenarios, where one individual variable is altered (for example, if revenue dips by a certain amount).
Mapping out scenarios can help ensure that startup leaders, founders, and CEOs always have a trusty budget to turn to, even when different outcomes occur.
When Should I Update My Budget?
Business budgets are not a “set it and forget it” affair, and they should often be reviewed and updated. While the timeframe in which leaders decide to review and update their budget is a personal choice, a common option is to perform a budget review at the end of every month. After the review, if updates are necessary, they can then be made.
How do I Include Unexpected Expenses in My Budget?
How can you predict the unpredictable, and account for unexpected expenses while business budgeting? While this might seem like a head-scratcher, most businesses choose the simple option of creating an emergency fund. This emergency fund can include as much money as a startup is comfortable with, but it should only be used for expenses that are truly unexpected, such as broken equipment, surprise rises in costs (like rent or insurance), or delayed payments from vendors, for example. Other variable costs (such as seasonal changes in profits) should be accounted for and included in the regular budget, to the best of everyone’s ability. Scenario mapping can also help leaders prepare for unexpected expenses.
How Does Accounting Tie Into My Budget?
Accounting and business budgeting are essentially a match made in heaven, because proper business budgeting is nearly impossible without adequate accounting for startups. That’s because business accounting includes just about everything under the sun that has to do with a business’ finances, including taxes, payroll, good bookkeeping, HR, financial statements, and cash management. When a business is using proper accounting practices, leaders will already have all of the data and information they need to create accurate and comprehensive budgets, which can then lead to well-informed financial decision making.
Business budgeting starts with proper accounting.
You probably get it: business budgeting is pretty crucial for a startup to succeed financially. But in order to create accurate business budgets that actually lead to excellent financial decisions, startups need to first have proper accounting practices in place.
Business budgeting and accounting can be a lot for one business to handle on its own, but that’s why we’re here. We’re hiline, and we offer a wide array of outsourced accounting services to meet all of your needs, so you can create a powerful business budget that helps you take your business to new heights.
Interested in learning how we can help you with your accounting and financial needs? You can read more about our accounting services here and contact us today.
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