You Started a Business, Not an Accounting Firm… But Budgeting Should Still be a Priority.
Most small business owners don’t start their companies to become accountants. You go into business to do what you love. Even as someone who studied accounting in university and has her Chartered Accountant designation, there are some parts of owning my own business that I unintentionally put on the back burner (looking at you business taxes), as they don’t seem as fun to me. For a lot of owners though, budgeting is that afterthought.
The word “budget” often feels restrictive, inciting fear of not being able to spend money at all. Budgeting does not have to be a scary, restrictive concept, but instead can bring freedom in knowing exactly what you are spending your money on.
Budgeting is a key part of being a small business owner. It shows your revenues, your expenses, and most importantly, your categories where most of your expenses should be going versus where your money is actually going.
Budgeting doesn’t fail because of owners not being proactive and smart, it fails because of the method. A method that is broken, static, and disconnected from the realities of running a small business on the day-to-day. These are the two reasons that I have seen that have led to small business budgets falling apart, and how we can fix it in easy, digestible steps.
Number one is when owners SET AND FORGET. It’s January of the new year, and a beautiful 12 month spreadsheet has been created for the upcoming year… and doesn’t get looked at again until October. Business is dynamic. Budgets need to be looked at more than twice a year. Factors, both from a macroeconomic and microeconomic perspective, can vastly influence revenues and expenses from month to month and cause an April budget that was made in January to be obsolete. An easy fix to this is to set aside an hour each month (I personally do this on the first day of the new month to review the previous month) and go through your previous month’s budget to see what happened and try to explain anything unexpected (ex: higher revenue due to new client that wasn’t expected to join until next month or higher expenses due to new software trial).
Number two is OVER-COMPLICATION. These budgets don’t need to be done in a financial modelling software that took you four hours to understand and another two hours to actually do because of all the labels required. There is no chance that your budget gets updated if you are frustrated. Use a simple spreadsheet and save your sanity.
It doesn’t have to take awhile, doesn’t need to be complicated, and shouldn’t be something that you dread. Understanding your business through finances is powerful, and having a simple budget that gets updated monthly is an easy way to do that. Take 30 minutes today to review your own business and make sure you are happy with your budgets.