Get your budget on

 

guest commentary by David Potts

As a small business owner, if you had the opportunity to make $6,000 in one day, would you take it? How about $12,000? Maybe even more? Or if you work for somebody else, what if you could make another $1,000 this Saturday? It’s simple to do, yet most people aren’t willing to take the time or just don’t know how.

Making more money is as simple as establishing a budget for your company. Many people could prepare a budget in a day. But budgeting is so fundamental to financial management and a term so common that people don’t give it much thought. Therein lies the problem.

Budgeting is boring and common. Marketing your business via Facebook and Twitter is exciting. Preparing a budget is old news. Cloud computing is the new technology. Or maybe, the objection to preparing a budget is “I own a business. Give me a break! Where to you expect me to find the time. I’ve got customers to service.” There are many and various reasons why small business owners fail to prepare a budget for their business. What a shame.

Let’s take a minute to review the basics. What is a budget? A budget is forethought. A budget looks into the future. It’s a plan to control spending with the intention of ending up with a surplus, not a deficit.

When you prepare a budget for your business, you benefit, your family benefits, your employees benefit, and your customers benefit. Everybody benefits (except your competition), IF the budget is used properly after it is prepared.

In today’s economy, business is more uncertain than in the recent past.  We are less certain that sales will materialize and we don’t know if costs are going up or down. The Federal Reserve Bank is trying to spur inflation to prevent deflation. This uncertainty is reflected in less profit for most businesses. How you spend your money, of course, determines the level of your profits. If you analyze your costs as you prepare your budget (versus budgeting the same level of expense as last year) you are almost guaranteed to find unnecessary costs you can eliminate or ways to reduce essential costs. This “deep thinking” is the greatest benefit of the budgeting process.

If you use your budget, you compare your real spending against your planned spending on at least a monthly basis. This process identifies unexpected changes in your business operations and allows you to adjust quickly to protect your profitability or to take advantage of unexpected opportunities.

Comparing actual spending against planned spending is a great learning tool. This immediate feedback can show you cost behaviors or changes in your industry’s structure previously unnoticed. This knowledge learned and applied might save your money year after year after year.

A budget, if used, prevents mindless spending, or impulse spending. Businesses are just as susceptible to impulse spending as any teenager. The difference is it is easier to justify mindless spending if you are a business owner. “It’s going to help my business make more money.” Sure, and Santa Claus in coming to town.

A budget can be used as a communication tool. When presented to the business’ managers or key employees, it communicates that costs are to be controlled and that profitability a top priority. Managers now have specific and measurable targets. This creates accountability.

A budget is a tool that makes your business more profitable. And what are the benefits of a profitable business? You make more money, your family enjoys a more prosperous life, your employees feel a greater sense of pride, and your customers are better served. Preparing a budget is the application of wisdom.

So how do you prepare a budget? First you have to acknowledge the preparation of a budget is a priority for your business. You make the necessary time for priorities. Would you miss dialysis if your kidneys had failed? You will only make preparation of a budget a priority if you believe it will increase your profitability significantly. So will it? I believe common sense provides the correct answer.

2011 is three weeks away. Let me challenge you. Take a day before the end of this month and prepare a budget for your business. Even if can’t complete a budget for your business in one day, the forethought, planning and analysis given in this one day will easily increase your profits. If you complete your budget and review it each month against actual spending, making another $6,000 or $12,000 could be chump change.

Wasn’t it Benjamin Franklin who said, “By failing to prepare you are preparing to fail”?

A couple of links to online resources that might help you prepare your 2011 budget are:
• Inc. Magazine’s The Small Business Owner’s 2011 Budgeting Tool Kit
• U.S. Small Business Administration’s Budgeting for the Small Business

About Potts
David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

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