Today we're bringing it full circle with a post directly from Jody Salbo, founder of Halo Insights, LLC.
Do you know what’s going to happen this year? Neither do I but planning is a good place to start.
When I worked in investment banking, every August I was asked what the securities I managed would be worth over the next 17 months. I always thought, how could I possibly know that? Even Warren Buffet doesn’t know that. I would make my predictions based on market and economic data, experience, and spitting into the wind. Year after year, I would see my predictions come pretty close. It’s our experience and knowledge of our business that allows us to better understand what’s going to happen in the near term.
When it comes to finances, your business’s budget is a blueprint for what you want your year to look like. In the simplest of terms, a budget is a financial plan for a determined period. For most small business owners, when we think about our budget, we’re talking about our annual operating budget which is an estimation of revenue and expenses over the course of a year.
Typically, you’re looking for a surplus or balanced budget where your revenues are greater than or equal to your expenses. Basically, you want to earn more money than you spend. Pretty simple, right?
So many people avoid budgeting because it seems scary and finance-y but it doesn’t have to be. I would rather you have a simple budget written on a napkin than no budget at all. I’m sure many of you are cringing at the thought of putting together a budget but it’s important and here’s why.
Your budget is your blueprint, your roadmap, your plan. It helps you to set financial and product or service goals, to measure performance, and to plan for contingencies. It’s probably the single most important management tool in shaping the direction of your business.
It’s an important device that demonstrates your company’s strategy such as the priority of some products or services over others. If you don’t know what your organization’s finances are you can’t build an effective strategy or engage in goal setting for your business, and vice versa.
Similarly, it ensures proper resource allocation. If you provide one service that is more expensive than another, budgeting will help you to assess if the less expensive service can subsidize the more expensive service. It might also tell you that the service is just too expensive to provide altogether.
Budgeting reduces the chance of overspending. If you continue to compare how much you’re earning and spending to your budget, you’ll be able to make adjustments along the way and stay on track.
It increases efficiencies and reduces costs. If you’re budgeting, you’ll be ensuring you’re investing your financial resources wisely. Complianceology shared a post about our work together recently where, for example, we looked at all of the subscription services the business was using. We found that there were subscriptions being underutilized so we were able to cut those costs and plan subscription service use for the year.
Now that you appreciate how important budgeting is, get out there and do it! Before you do, check out our post where we share our top 7 tips for setting up your company’s budget and then head over to our 2020 Together page where we share a simple freelancers budget template. If you’re still struggling, we would be happy to work with you to make sure your financial future is well planned.
This post is not legal or financial advice and is only educational in nature. This post does it constitute a consultant-client relationship.