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Budgeting Essentials Blog

Helping you master the practical essentials of Budgeting, Cash Flow, Accounting and Debt Relief.
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How does a Financial Plan (budget) benefit a Small Business?

Last week I talked about “Good Financial Statements use Matching!”  If you missed that post, you can review it HERE.  This week’s post is “How does a Financial Plan (budget) benefit a Small Business?”  When you are running a small business, sometimes you can overestimate your memory.  Even though you are capable of keeping your finances in your head, often you have enough other things going on that push the finances out.  Then a financial decision comes along that is going to affect how much cash you have on hand.  Should you make that decision from your memory?  Learn more in this week’s blog.

It is the beginning of March.  You have an opportunity to make a purchase that is going to use a lot of the cash that you have in your account right now.  You didn’t prepare a budget this year.  Should you make that purchase?  Based on your cash balance, you can probably go ahead.  So you do.  The next day, your CPA calls to remind you that you need to get your taxes done by March 15th and you have a tax payment to make.  Now you have a problem.  The tax payment is now more than the cash you have because of the opportunity purchase you made.

The tax payment is an example of an item that you have to pay that comes up infrequently.  It could be an annual insurance payment, an annual maintenance contract or any number of other items that you don’t pay every month.  I used to try to keep all of my To Do items in my head.  I had to stop because there were too many things that I wasn’t completing in a timely manner.  It wasn’t a memory problem.  The items were still there in my long term memory.  But I couldn’t manage them in my short term memory.  That was a problem, because by the time I remembered the item or was “reminded” that it was due, I was already late.  I learned the hard way that using memory to manage my To Do list was just not practical.  This was especially true because I had tools available to me to help me manage the process.

The same thing applies to your business.  Are you capable of remembering everything you need to do?  Yes.  Eventually you will remember everything.  But is that the best way to manage your business?  NO.  You also have tools available to help you.  Now when I was first dealing with my To Do issue, the primary tools that I had available to me were pen and paper.  I would make a list, review it as I was working and cross items out as I completed them.  It got easier when calendar programs came along that you could set reminders for yourself on items you needed to complete.  As my tools got better, it made it easier for me to “remember” what I needed to get done.

The tool that helps you with the financial planning for your business is your budget.  It can take a number of forms, just like my “To Do” list did.  You can prepare a budget using pen, paper and a calculator.  This manual method is the really hard way to do a budget.  I don’t recommend it unless you don’t have any other options.  A much better option is a budget spreadsheet.  Depending upon how complex your business is, there can be some set up involved here.  Set up a spreadsheet budget isn’t difficult, if you what to do.  Click HERE and enter your email if you would like to be notified the next time I do my FREE budget prep workshop. 

Another way to prepare your budget is to use your accounting program’s budget function.  This method works pretty well for budget monitoring, but for budget development, I find it a lot harder to work with.  It is harder to see the effects of making a change in the budget without printing it out.  It can also be involved when you have to make changes. 

There are also starting to be stand alone budgeting programs you can use to create your budget.  I haven’t found a program that I recommend so far.  I don’t find them cost effective for small businesses.  They tend to be online programs with monthly fees.  They also seem to be designed more for accountants than for small business owners.  You also have program changes and learning curve issues to deal with. 

Let’s get back to the benefits of preparing a budget.  Budgets can help you see when you have obligations due.  Taxes need to be paid, the water bill needs to be paid, your insurance needs to be paid.  Depending upon your business, you could have a number of different items that you will need to pay.  Using a budget will help you see when your payments are due and help you avoid being short on cash to pay them from spending money when you need it.

Another benefit of a budget is that it helps keep you from spending creep.  This happens when you do things like picking up a bunch of small things that add up when you put them all together.  This affects your bottom line and is something that having a budget will help you be aware of and correct if it becomes a problem.  Without a budget, you don’t have a goal to meet, so you aren’t as diligent as you could be on your finances.

That leads right in to my final reason for today.  A budget helps you put more of your hard earned money into your pocket.  Just like spending creep affects your bottom line, not having a budget makes you less aware of how you could be doing with your finances.  You don’t have a measuring tool that helps you produce the best financial version of your company.  You can make money, but it is harder to hit marks that you haven’t thought our and written down.  When you are preparing your budget, It is a great time to look at your numbers as a whole before you begin the year.  You are able to spot trends and research potential areas where you can save money.

Use your head to process current items as you need to address them.  Use a budget to plan your finances!

If you know someone this post will help, please share it with them!  Then scroll down to the comments section and leave me a comment on this post.  If you aren’t already a subscriber, sign up to receive notification emails and information on other promotions!

God Bless your week!

 

Copyright

© 2018 Dan Heiland 2018 Kat Heil, LLC

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Good Financial Statements use Matching!

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