It’s amazing — and scary — how many Mayfield Heights businesses operate without a true budget. Cash flow becomes their only barometer, and that often doesn’t include an accurate picture of ongoing growth, or the health of a business.
Look — in addition to handling taxes and books on behalf of local business owners, we like to dig into the weeds and help move them towards true profitability.
And while creating a budget is often associated with personal financial management, for Mayfield Heights businesses looking to experience year-after-year growth, creating and implementing a monthly budget will help immensely.
This week, I want to discuss three easy steps to help guide you in the process. But make sure you aren’t doing this alone. One of the most important aspects to budget success is accountability. That’s what we can help you with.
We’re in this together.
Oh, and a quick tax note: as you probably know, business returns are due March 15th and personal returns are due April 15th. Many clients get extended so that we can ensure that we get things lined up perfectly (and profitably) before filing.
But remember: an extension is an extension of time to file, not to pay. If you owe money, they will start running an interest and penalty clock on those first dates.
Now let’s get you budgeting…
Jeffrey Campbell’s Three Simple Steps Towards a Better Business Budget
“We must consult our means rather than our wishes.” – George Washington
Preface: Your budgeting team should schedule a recurring meeting at the beginning or end of each month to discuss what’s going well, what needs to change, etc.
That’s the first thing you need to do.
1. The Costs You Count On
Once your meetings are set, and you’ve created a budget document (Excel, Sheets, Quickbooks, etc.), record income and fixed costs which you’ll revisit every month. Those two items are crucial to surviving and thriving as a business.
To start, income will largely include sales — this is why it’s important to nail down recurring customers or businesses who utilize your services. If you can lock them in as monthly buyers (subscription service, ongoing help, etc), you will have an easier time calculating revenue streams.
Next, record what fixed costs your business takes on every month. How much money does it take for you to survive? Pay rent? Pay employees? Setting this number will give you a monthly goal to reach, and will help your sales team go out and (hopefully) exceed that number.
2. The Variables That … Vary
You guessed the next item: what you can’t depend on from month-to-month.
But that doesn’t mean you can’t predict! This is where goal setting comes into play. I’m talking about realistic, measurable goals. A large reason you are doing this with other team members is to discuss, set and revisit goals every month. It will also give your business development team tangible numbers to go chase.
Want to hire a new employee in the second quarter? Great, write that expense down. Want to take your team on an end-of-year retreat? Write it down. When is your peak season, and how much more do you think you can make this year than last?
Again, variables pertain to income and expenses you can’t rely on from month-to-month, but you can predict … and isn’t business one big prediction?
3. Designate a Scribe
If you thought I was only going to mention your budget document once, think again.
It is crucial, as part of your new business budget, to have a place where you or someone on your team records each expense, variable and income source (let such items fill your Y-axis, while each month headlines your X-axis). Here’s a few to get started:
- Product/Service Sales
- Rent/Mortgage & Utilities
- Bank Fees
- Web Hosting
- Office Supplies/Furniture
Those should get you started, but only you will know all the items to include. After you add up your income and subtract your expenses, you’ll have an idea of where your business sits. It can be as sobering as it is enlightening.
Now don’t waste anymore time if you have not created a business budget in the past! Your team will thank you for taking the lead, and it will help position them for success.
Up-and-to-the-right growth never happens without some bumps in the road, but with this tool you are at least driving in the right direction. Enjoy the ride!
And don’t hesitate to reach out for help.
Feel free to share this post with a Mayfield Heights business associate or client you know who could benefit from our assistance. While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners.
Jeffrey A Campbell CPA