This Is The Year: I Balance My Budget

Just in case this word isn’t in your vocabulary:
Budg-et [buhj-it]
– noun
1. an estimate, often itemized, of expected income and expense for a given period in the future.
2. a plan of operations based on such an estimate.
3. an itemized allotment of funds, time, etc., for a given period.
4. the total sum of money set aside or needed for a purpose.
5. a limited stock or supply of something.

Budgets make a lot of people uncomfortable, because the prospect of sitting down and figuring out exactly how much money you do (or sometimes don’t) have to work with can be off-putting. But you don’t have to look at a budget as a punishment device dreamed up by your sadistic accountant for the sole purpose of making your life miserable. A business budget is a set of goals; it is nothing more than a road map for the financial twists and turns for the year to come. It is a forecast. A good budget is one that outlines controlled but realistic spending, while also showing you where the money is going to come from.  By mapping out where you want to put your money in the upcoming year, and how much you want to devote to certain things and not others, you are sending a powerful message to your employees and maybe even yourself about what your business and personal priorities are. It’s a communication tool of the most powerful sort. And girded with this knowledge of where the company is and where it wants to be, your employees will feel empowered that they are part of a team and will be more inspired to help your business achieve its goals within the clearly defined parameters of the year’s budget.

1.    Choose a Budgeting Tool

It’s important to find a budgeting tool that is going to fit the size of your business, and one with features that appeal to you, which will increase the odds of you actually using it.

Mint.com

Mint.com is a great new (and free) budgeting tool that pulls your financial information directly from your various checking, savings, and credit accounts. Once you have set it up correctly, it will automatically know when you make a purchase and where it should record that purchase in your budget tracking. It will then send updates to your email if you happen to exceed your spending limits in a certain budget category. This is a great tool if you are looking for a more hands-off approach to budgeting, but still want to stay abreast of your finances.

BudgetPulse.com

For many people, the major drawback to a service like Mint is that you need to give the site all of the logins and passwords to your various online banking and credit accounts in order for it to work. If nagging questions about the safety of your financial information is going to keep you up at night, then you might want to go with an option like BudgetPulse.com. BudgetPulse works much like Mint, except that you have the option of entering all of the transactions by hand. While this might be more tedious and time-consuming, it might help some spend more time thinking about how much they are actually spending, and as a result help them to spend less.

An Excel Spreadsheet

If you don’t need the bells and whistles of the aforementioned budgeting sites, then you can just track your projected and actual spending and income in a good, old-fashioned Excel spreadsheet. This way you will have total control over how the information is organized and what gets put into it. It doesn’t really matter which tool you use, the main thing is to keep all of your financial information in one place and implement a budgeting system that you will actually sit down and use on a regular basis.

2. Use Past Expenditures to Create Your Projected Budget

After choosing your preferred budgeting tool, it is time to create your actual budget for the year. If you chose to use a service like Mint that has the ability to pull your previous financial information, then part of your work will be done for you. If you’re not using Mint, then you will need to gather together all of your bank and credit card statements for the past year, and use the past expenditures to map out your future ones.

If the prospect of slogging through all of the previous year’s financial transactions seems daunting, try separating the information in order of importance. Start with the painless step of figuring out your projected income. Then tackle your expenditures in a three-tier system. Tier 1 will be fixed, non-negotiable expenses that are essential to your business operations. These are things like rent, utilities, salaries,etc. Tier 2 also contains necessary expenses, but ones that you have some wiggle-room on. Perhaps you don’t need the fastest Internet connection, or maybe you could negotiate the rates on some of your office supplies. New hardware such as computers might fall into this category: sure, you can probably justify it, but not if your company is in serious financial straits. Tier 3 are those expenses that are nice touches, but not necessary for running your business. These are things like staff lunches, or holiday gift baskets. Tier 3 is made up of all of those things that will get jettisoned if you are in the middle of a financial storm that threatens your business.

Once you have made your budget based on past expenditures, look it over to see if there is anything you are forgetting. Don’t forget to add in any new expenses that don’t yet appear on your previous bank or credit card statements.

3.    Outline Goals and Objectives for the Coming Year

What would you like to accomplish in the upcoming year? Perhaps you have an idea for a new product or two. What will it cost to make and market them? Now is the time to create your plan of attack for making those dreams a reality. Research the production costs and develop an advertising budget. Maybe you have been feeling the pull towards a totally different business model or industry. Finding out the necessary information up front at the beginning of the year will help you to budget accordingly and as a result do more to ensure your success in any new ventures.

4. Track Your Spending

Once you have your projected budget in place, make sure you stay on top of tracking your spending, recording every transaction to the penny. Budgets are no place for sloppiness, so make a point of committing yourself to accuracy, even if it seems like a penny doesn’t matter. It’s the principle of the thing. This is where Mint really comes in handy, as it does all of your tracking and recording for you. If you are using BudgetPulse or a spreadsheet or other system of your own making, try not to fall off the wagon. If you stop tracking your spending, pretty soon you won’t have any idea where your money is going and you will end up spending more than you planned. Keeping an eye on your budget and your expenditures takes discipline, as does sticking to your budget, but at the end of the year you will be impressed by the vast improvements to your bottom line. In addition, the feeling of being in control of yourself and your spending is priceless.

5. Focus on Generating More Income

Once you have your budget and your spending under control, try to put it on auto-pilot as much as possible, so that you can stop focusing on what you lack and start focusing on what you can create. Don’t get me wrong; if you are feeling a budget crunch you should absolutely try to rein in spending. But you should also sit down and try to get creative about how you could generate more income for you and your business. This, after all, is what being in business is all about. Don’t let your budget-making give you a business outlook that is rooted in fear. You will go much farther and earn much more if you have an optimistic outlook that is always looking for ways to create new things and new streams of income.

6. Analyze and Review Your Budget

Periodically, say every fiscal quarter or so, you should analyze and review your budget to see if it is a realistic picture of your goals and expenses, and if it is adequately funded in order to help you meet your goals and objectives for the year. Look for ways to save and cut more costs, look for ways to bring in more money, and make adjustments to the amounts budgeted for certain categories where necessary. You might also want to look for areas where you could spend more in order to get a better return on your money or to drive more sales. Advertising or affiliate programs, for example, are two areas where spending more just might be in your best interest. The idea with a budget is not to be a miser, but to provide you with a strategic plan of investing your resources wisely in order to grow your business.
If you have never bothered to budget for your business before, you might be surprised at how this simple step can vastly improve your business acumen. The bird’s eye view of your finances and your business that a budget provides can help you make clear decisions that are rooted in the reality of your situation. As a result, you might find yourself flying higher than you ever have before!