Manage Your Business Budget Better in 2020
November 27, 2019 |
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One of the most
annoying challenging things about being a business owner is creating a budget that really works for your business. Where do you start? What do you include? Should you use budgeting software, or will a regular old spreadsheet work? How conservative should you be? How detailed?
Before we get buried in existential budget questions, let’s take a look at some tips and tricks for building a better business budget for 2020.
Tip 1: Understand your industry
Every industry is different. Some are busy all year round. Some are incredibly seasonal. Some have unpredictable peaks and valleys. By understanding your industry and the kind of business cycle it has in a typical year, you’ll be better able to plan for the future.
Also, consider if there are any pending regulations to your industry? If you work in a heavily-regulated industry, knowing what laws may be passed or rules that might change that could affect you in 2020 will help you better prepare.
Tip 2: Know what’s happening in business overall
Healthcare rules seem to change year to year, and knowing what’s coming down the pipe can really help you plan. Many states are rolling out programs like Paid Family Leave in New York, and that could impact your budget (depending on how your state plans to fund the program). Overtime laws and tax laws are also big things to consider when it comes to your budget.
Keep your ear to the ground for big changes like these, but also with your competitors and suppliers. You never know what one acquisition or bankruptcy could do to your business, or industry, or the business-world in general.
Tip 3: Create a budget team
Unless you’re a one-person business, create a budget team with members from every aspect of your business. Your team members could have insights into your business or customers that you might not be aware of that could really impact how you plan for 2020. For example, do you know what equipment is on its last legs? Or how long your current supply is going to last? Or if there are whispers about a big contract coming down the pipeline? And anyone who is going to be responsible for maintaining your budget numbers (either in spending or selling), then they should have a say in what the budget looks like.
Even if you are a one-person business, getting input from your CPA or a business mentor can help you avoid issues and find the right way to save for the future.
Tip 4: Plan for the unexpected
Predicting the future is a crapshoot at best, especially in business. So when it comes to actually building your 2020 business budget, you want to make sure that you plan for the unexpected. You can never guess when a piece of equipment is going to malfunction and stop production, or when your best salesperson is going to come down with the flu, or if the market is going to take a sharp swing. Adding a little wiggle room or a safety net should the unexpected happen (and it always does), can really help.
Tip 5: Be specific, but flexible
The more detailed and specific your budget is, the more you’ve planned for, and the more helpful it will be during the year. Take a look at your financials for the last five years or so and see where those one-time costs become more regular payments. How close were your budgets in the past? Did you forget to include certain expenses or sources of revenue? Add them now. Were you over or under in your past projections? Adjust from the past and take into account what you have planned for the future to create a detailed and specific budget.
But don’t carve into stone just yet. It’s okay to readjust and replan for things during the year. Those unexpected purchases or huge windfall projects can cause big shifts to your budget. Maybe a new investor comes out of nowhere. Or that customer you gave up on suddenly signs their contract. Or a new kind of equipment is introduced that will make things so much better for your production. It’s okay to adjust and flex your budget as things change.
Tip 6: Your budget isn’t the be all, end all
Your budget isn’t meant to account for every single penny in and out of your business. It’s meant to be a guide to help you better manage your finances. If you nail yourself to your budget before the year even starts, you could be setting yourself up for a real struggle. Budgets are designed to help, not hinder your business. It’s a tool, not a rule.
Tip 7: There are different kinds of budgets
Did you know that there are different kinds of business budgets? Some budgets focus on budgeting for cash flow. Some look at the accrual basis to estimate net income. Some do both. You and your budget team need to decide what kind of budget you would all find most helpful, and what goals you’d like it to help you meet. Once you’ve got that down, the budget should basically complete itself.