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7 Tips for Setting a Small Business Budget
Creating a Business Budget Keeps You On Track to Your Goals
Budgeting can help you understand and plan for many different factors that affect your business. It may feel like a chore, but creating a thorough and targeted business budget is one of the best ways to support your small business’s daily needs and growth plan. Follow these 7 tips to learn how to prepare an effective budget for a company of any size.
1. List Expenses with Context in Your Company Budget
A good first step is to list out your business expenses and to give those expenses the proper context. That means supporting your expenses with data and related factors like timelines, business objectives and any related nonfinancial resources. Note key performance indicators (KPIs) to help you track your progress and make changes when they are needed.
2. Define Realistic Goals
All good company budgets are designed around clearly defined and achievable goals. Determine those goals by looking at your business’s recent performance and chart out a path for sustainable growth. Consider factors like this year’s sales pipeline, previous years’ revenues and profits and trends in your market and industry.
3. Choose the Right Business Budgeting Tools
You can create a small business budget from scratch, but digital budgeting tools can save you the trouble. Look for a business software program that integrates with your current bookkeeping software and consider a cloud-based option if multiple employees will need access to the budget. If you’re always on the go, consider an option with a mobile app.
4. Dial in the Scope
It’s great to keep track of historical budgets for context, and examining past expenditures can help you identify areas of waste, so you won’t make the same mistakes again in the future. However, you also want to avoid cluttering your current small business budget with unnecessary details. Save prior year budgets for reference, but narrow the scope of each new budget to the current year and critical information that can help with future budgeting decisions.
5. Examine Your Expenses
When creating a new business budget, weigh the value of each expense – particularly recurring expenses that are paid automatically, like professional memberships and monthly software subscriptions, which are easy to “set and forget.” Make sure you also provide a high range for your most variable expenses – planning for costs like salaries or supplies to be higher ensures you have what you need if your costs are at their max, and gives you flexibility if they come in a bit lower. Reviewing expenses can identify and eliminate unneeded or excessive spending and help with your tax planning.
6. Check & Revise Your Budget Often
Your company budget needs to evolve to continually serve and support your goals. Make a habit of checking your budget often, especially when there’s a significant change in your company, industry, local market or the broader economy. Your budgeting should be responsive to changing needs, capacities and conditions, as well as leave room for unexpected events and expenses. Quickly evaluating and responding to changes in your revenue or expenditures – making note of your most variable costs – can help your enterprise to stay nimble, avoid pitfalls and take best advantage of emerging opportunities.
Taking the time to reassess your budget periodically throughout the year helps you see the bigger picture and find the best ways to allocate resources to cut costs and boost your profits.
7. Stick to Your Budget
If your business budget is easy to use, you’re much more likely to stick to it. Maintaining a clear and consistent structure from year to year will make it simpler to manage your finances and analyze data. Your budget can be a valuable guide for future business decisions, but only if you take the time to consult it regularly. If your overall plan is strong but you find you’re deviating off course, commit to a monthly review – preferably with at least one other team member or an industry mentor who can share oversight and accountability.
Make the Most of Your Finances with WesBanco
Creating a business budget? Our trusted and experienced small business financial advisors can help you reach your goals. For personalized budgeting advice and tools, reach out today.
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