Budgeting for the New Year!
The end of the year has arrived, and it has been an eventful one! Come the end of December, and for the first half of January, you should be focusing on objectives you want to accomplish for the new year, 2017. It is a relatively simple task to come up with goals you want to achieve, but it is much harder to actually conquer them. One of the greatest issues I hear among business owners is in scarcity - you probably have great tasks at hand, but only a limited amount of funds and time available to tackle them. Thus, enters the necessity of proactive planning and budgeting - hopefully this article will provide you the basics and some tips to get started on your goals for the new year, if you haven't already.
It is a dangerous practice, yet too strikingly common, for a business owner to dive into a new venture, year, or project without a budget. For the sake of definition, at its core, a budget is an estimation of your revenue and upcoming expenses, for a period of time in the future. But why even create a budget? If the obvious is not apparent, you NEED a budget if you plan on securing financing for a project, or for any other type of bank leverage. Also, by budgeting for the future, you can set caps on the amount of expenses you incur. It would be foolish to spend excessively, just to find you cannot cover overhead the next month. Having a budget and tracking your expenses will keep you and your business in check.
With many different inputs and outputs in your business, the estimation part of the budget can be challenging, especially if your business has a fluctuating accounts receivable turnover, or you are in a job (project)-based business, for example. Often, looking at your budget for the previous years is a good place to start, but sometimes you may not have this luxury, especially if you are just starting out. A great way to counter this issue is to conduct industry research. Build a list of comparable companies in your area of operations, or conduct research online to avoid conflicts of interest. Many entrepreneurs are more than willing to help a fellow business owner with estimating the trends in your industry. Additionally, your business coach should be an expert in setting realistic goals and budgeting for the same (if they are a good one!).
When building a yearly budget, don't make it complicated. There is no need to put a line item for every single expense, so feel free to categorize. Once you have your budget outlined for the year, break it down month by month. This step is important. Another bad practice I see way too often is business owners creating a budget - and then never touching it, at least not until next year when it is time to make another. A budget should not just be "something you have to do because you're a business owner" activity. Break your budget down month-by-month and work with your business coach to evaluate your progress throughout the year. All of your goals should have measureable timelines and budgets; if they don't then you cannot effectively judge your progress in the present nor plan for the future.