BUDGETING
What do you feel when you see this word?
- Overwhelm?
- Anxiety
- Confusion?
- Fear?
As business owners all of us know we SHOULD be budgeting. As adults we know we SHOULD have a personal budget. But most of us come up with excuses such as:
- I don’t like numbers.
- don’t know where to start.
- I make budgets but I never stick to them.
- Preparation and maintenance is so tedious.
- I just don’t have time.
What if with just a bit of time and focus I could show you how to prepare a business budget?
Imagine how it will benefit you and your business and bring clarity to managing and growing your business.
In this week’s blog, that is exactly what we are going to do. My goal is to give you some budgeting basics that will help take the overwhelm out of business budgeting and give you tips on how to maintain one in both your personal and professional life.
What is a business budget?
Because there are a lot of ideas about what a budget is, let us first define what we are talking about. In this case, a budget can be defined as “an exercise whereby you prepare a statement or document that shows what you expect to earn and spend over a specific period of time.”
Why prepare a business budget?
Preparing a business budget gives one a clear view of what they can expect in terms of income, expenditure and hence whether they will have a profit or loss (a surplus or deficit) at the end of the time period for which the budget has been prepared.
This document is part of your planning and vision for your business that will allow you to track whether or not you are meeting your goals and targets. On the income side, it shows if income is enough to cover expenses. On the expense side, it shows if you are paying everything you should be paying on time. Most importantly it also shows if you are overspending.
In short – preparing a business budget will show just how profitable you are at any given time.
Business Budget Benefits
Aside from just showing you how much you are making and how much you are spending, a business budget can also assist with making decisions.
Because your budget is a live document in that you compare your actual numbers to your budget every month and analyse any differences it allows you to look at your financial trends in real-time and see where you are hitting or missing your income and expenditure targets. These differences will direct you as to whether your goals are realistic, what you need to do to improve income, and control expenses as well as cash flow analysis.
If you are not meeting your targets the budget will show you in which area you need to make different decisions.
To note: while it is rare that the actual performance of your business will agree to your budget 100% it will, at the very least, give you an idea of how close you are to meeting your targets.
Business in Botswana
Here in Botswana, the Botswana Unified Revenue Services (BURS) dictates that every business has to pay Self-Assessment Tax (SAT) and in order to determine how much your business has to pay YOU WILL NEED A BUDGET.
As well, banks here in Botswana require you to create a budget which they call “Cash-Flow projection” when opening your business bank account and when applying for a loan – both personal and business.
If in the event you owe money, your budget will also give you a clear view of how much is available to pay off loans and so it contributes to debt management.
How to prepare a budget:
Now that we’ve established what a budget is and why you need one here are some basic guidelines to follow when sitting down to create your own.
- Set time aside when you will not be disturbed and are able to focus.
- Decide on the period you want to prepare a budget for – My recommendation is that you start on a month to month to month basis over a year. (The year is usually your company’s financial year.)
- Remember to make your estimates as realistic as possible. My recommendation is to set up an Excel spreadsheet as it is easy to make changes as you go along.
Essentials to include in a budget:
- Income – if you have more than one income source it is better to differentiate these.
- Expenses – all your monthly running expenses as well as any annual expenses.
- Capital expenditure – these expenses should be included as a different subsection.
#TOP BUSINESS BUDGETING TIP – Under expenses include an item for savings. This should be at least 10% of your gross income. This is to provide for any unforeseen expenses, emergencies, to keep your cash-flow healthy and if there are no unforeseen expenses you have “extra” money to spend. It is advisable to keep this in a separate account.
Are you ready to get your business budget in order?
I invite you to clear your head, focus and make the decision to sit down and prepare a budget and then see how it benefits your business, bringing clarity and better direction to meeting your goals and targets so that you achieve your vision.
Things to keep in mind:
- Set realistic targets.
- Track actuals to budget.
- Review budget monthly and adjust it if necessary.
- Apply to every area of your life.
- Provide for Tax.
BUDGETING BEYOND BUSINESS
As you can see the importance of budgeting. It goes beyond business too.
Use it for your household income and expenses to avoid overwhelm in your daily living.
Teach budgeting to your children so that they know from an early age how to handle money. Include them in your monthly household budget so they learn what is affordable and what they can and cannot have.
To help get you started setting up your own business budget, I have created a FREE Business Budget template that you can download and customise to your needs. Simply fill out the information below to grab it.
