Many business owners would rather do just about anything else instead of creating a budget. At the same time, they know how essential it is to reign in expenses and ensure that the company remains profitable.
Setting priorities for the business is another important aspect of creating a budget. It lets all employees know with one glance which things are the most important things to spend money on as well as the things that can wait until cash flow improves. For example, a business focused on expansion would show more money allocated to marketing while one looking to improve sales would reserve the most funds for sales team education.
Budgets act as an important measurement tool for businesses of all sizes. If your company vastly overspends in one area, you can review the budget at the end of the quarter to determine if it’s still practical. If those responsible for setting the budget decide that the allocated spending amounts are still appropriate, the next thing to do is determine how to cut expenses to better stay within budget for the next quarter.
Set Realistic Budget Goals While Still Leaving Room for Flexibility
When sitting down to prepare a budget, be sure to gather your company’s financial records for the past several months. By analyzing spending trends in several areas, you can set goals for future spending that are both realistic and conservative.
Some members of your budgeting team may want to control all spending down to the penny while others feel it’s important to allow leeway for unexpected costs. A simple compromise for this problem is to leave a portion of the budget unallocated. When other areas go over budget or you must deal with an emergency, it’s still possible to stay on budget by pulling money from the unallocated slot.
Determine a System of Accountability for Spending
A budget only works if employees follow through with it. When the budget committee drafts a new budget for the month, quarter, or year, it should include a description of how people will account for their spending. They shouldn’t have to justify every small expense, but the team should agree on an amount that requires approval from a superior. Those at the highest level shouldn’t be exempt from accountability either. Giving a quarterly report to all employees is one possibility for remaining transparent about company spending.
Hire an Accountant if Necessary
Everyone has different talents, and accounting may not be something you or other members of the budgeting team feel comfortable taking on. If so, be sure to hire an accounting consultant or in-house employee soon after implementing the budget. This is just one more way to ensure that your business remains on task with it. Lastly, we recommend reviewing the budget often and changing it if necessary.
Please contact us for additional tips on creating and enforcing a budget, or to request help managing your company finances. You need all the help you can get to run a small business successfully, and Doerhoff & Associates is here for you. We strive to provide what you really want and need – a unique and customized set of services to fill the gap and support you, the business owner.