January 20, 2010

I'm going to make a prediction about your small business.

You didn't get into that business because you were excited and enthralled by the idea of managing your finances and setting up a budget.

I certainly didn't, and I've yet to run across a small businessperson who got started with their business out of a great excitement for budgeting and financial management. 

Small businesses - the ones that succeed - are borne out of passion for something, whether it be a particular topic area, a particular methodology, or something else.  Businesses succeed when people love what they're doing so much that they pour their heart and soul into it and the business grows in new and unexpected and powerful ways.

Suddenly - quite often, in fact - small businesspeople find themselves in a whole new world in which their lovely pet business has suddenly grown into a giant bull, surging forward into new directions with them holding on for dear life as things charge into new areas and experiences they never anticipated.

For almost all of us, one of these areas is budgeting.  Quite often, the nucleus of a small business comes from a shoestring.  A person figures out a passion and they seek ways to continue following that passion.  They find others that share that passion (ideally) and they conceive of a way to make money from that passion.  A book lover opens an independent bookstore.  A gear head opens an automotive shop.  Their dreams are filled with days chock full of their passion - and then the realities of billing, money management, and so forth burst in.

It's time to make a budget to get some sort of control over this new flood of money moving both into and out of the business.  Here are five key pointers for people who find themselves in this brave new world.

First, the purpose of a budget is to simply consider carefully how you're spending your money.  There are many, many formal ways to organize a small business budget, but they all have that same central goal in mind.  A budget works if it reveals to you the ways in which you're overspending and the ways in which you're under-spending.  Keep that in mind throughout the process.

Second, a budget plots your financial path to where you want to be.  It's not merely a replication of how you spent money over the past year, even if that year was successful.  If you just finished a year in which you went from 200 loyal customers to 1,000, you don't just multiply last year's budget by five.  Some areas won't grow at all, while others will grow rapidly.  Ask yourself what areas you felt were truly vital for the growth of your business - and, more importantly, will be vital going forward as you gain more customers and strive to maintain your level of quality.

Third, don't get bogged down in formality.  The most important element of any budget is that the people who actually have to use it understand it.  If the budget you're planning is getting so complicated and specific that you no longer find it useful to you, then it's not a worthwhile exercise.  By all means, dig deeply into budgeting for specific areas that you want to streamline.  Just avoid reaching a level of detail and complexity that takes the usefulness out of the document.

Fourth, remember that this is a living document.  If you're budgeting for the next year, you're merely coming up with guidelines for where you want your business to go in the next year.  Of course, we all know that quite often businesses zig when you expect them to zag.  Don't just discard your budget and start shooting from the hip.  Evaluate those changes, adjust your budget, and stick to the new guidelines you've developed.

Finally, seek some help if you're feeling overwhelmed by all of this.  You can turn to an accountant, to a trusted (and wise) family member or friend, or even to your spouse.  The more eyeballs you get on your goals and plans for future spending along with your records of how you currently spend, the better off you are.

A budget is not something to be feared.  A budget is merely a document you develop for your own needs to help you keep your spending on a reasonable track to help your business to go where you want it to go.  If it's not serving that need for you, it needs rethought from the ground up.

Join the conversation ( 3 )

• Ed Wielage 1 year 9 months and 17 days ago

  

  Too many small business owners don't see any value in a budget or at least not worth the effort. To me that seems to imply they don't feel they have any control over their businesses. Although I disagree, another compelling reason to budget is that much can be learned about the dynamics of a business by going the the process.

• Stacie McClure 2 years 0 months and 21 days ago

  

  Trent - you have written many wonderful articles that give me great ideas for things to share with my small business clients. Keep up the great work!

• Jim Robinson 2 years 0 months and 21 days ago

  

  Glad to be aboard, thanks for your help.