LUTZ BUSINESS INSIGHTS
5 Ways to Make Your Budgets Work
LAUREN DUREN, SENIOR ACCOUNTANT
There are many reasons why a lot of small businesses don’t create budgets. They are time-consuming, difficult to create, and perhaps the most universal reason, it’s challenging to predict what your income and expenses will be in the future.
If budgeting just seems too futile to you, take heart. There are steps you can take to build a budget that works. Here are some suggestions.
Start with the right mindset
Take your budget seriously, but don’t think of it as an absolutely rigid document that must be followed to the letter (or rather, number). Budgets help you:
- Better understand how you spend money and make money.
- Recognize expense and income patterns.
- Determine where you need improvement.
Tip: Keep your company’s overall mission and individual goals in mind. Does your proposed budget reflect these?
Model your budget based on historical numbers
Starting from scratch can be formidable and discouraging enough to keep you from completing this critical task. Even if your income and expenses fluctuate quite a bit from month to month, using a previous period or year as a model will provide a true representation of how your company actually performs over several months.
If you’re doing your accounting manually, this might be quite a chore. Start thinking about making the transition to QuickBooks in early 2019. If that’s not an option, at least retool your paper organizational scheme so you’re storing things by month.
Tip: Be sure to build in seasonal expenses, for example customer gifts during the holidays.
Make a distinction between what your company needs and what it wants
You could actually create two budgets and include your wish list in one. Work from a budget that contains conservative yet realistic amounts for each line item. You can then see if you have room for a “want.”
Some financial professionals recommend that you minimize your income projections and maximize your expense line items. This tactic forces you to stay realistic.
Tip: Don’t budget yourself to the penny, be sure to leave incomes as the end result.
Prioritize and be as detailed as possible
You’ve probably had to do this with your personal household budget. Your monthly fixed expenses come first, and you make decisions about the rest based on what’s left. This is a good way to motivate yourself when you’re staring at a blank piece of paper or spreadsheet.
Try to break major categories down into smaller, more specific sub-categories, but don’t overdo it.
Tip: Does your business work from a Chart of Accounts? Look to that for help with organization and comprehensiveness.
There are standalone budgeting applications available, but you would be able to work with your own company’s income and expense data if you use QuickBooks. The software contains special tools that make it easier to both create budgets and revisit them for periodic tweaking.
Tip: Let us help you get set up with QuickBooks. We know the software and we know small businesses and their budget needs. Contact us for a consultation.
ABOUT THE AUTHOR
LAUREN DUREN + SENIOR ACCOUNTANT
Lauren Duren is a Senior Accountant at Lutz with over three years of relevant experience. She provides outsourced accounting services to clients with a focus on tax, payroll compliance, and healthcare consulting.
AREAS OF FOCUS
- Outsourced Accounting
- Payroll Compliance
- Healthcare Accounting Consulting
- Nonprofit Industry
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- MBA, University of Nebraska, Omaha, NE
- BSBA in Accounting, University of Nebraska, Omaha, NE
- Lutz Gives Back, Volunteer
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