If you already have a budget, it’s probably been difficult for you to stick with it for the last several months. Unless you provide products and/or services that have been in great demand since the COVID-19 pandemic took hold, you’ve had to adjust your budget significantly.
Better days are ahead, though, and now is a good time to start doing some planning for 2021. While there are still likely to be uncertainties next year, creating a budget will give you a starting point. A budget increases your awareness of all of your projected income and expenses, which may make it less likely that you’ll find yourself constantly running short on funds.
Here are some ways you can make your budgeting process more effective and realistic.
Use what you already know.
Unless you’re starting a brand-new business, you already have the best resource possible: a record of your past income and expenses. Use this as the basis for your projections.
Be aware of your sales cycle.
Even if you’re not a seasonal business, you’ve probably learned that some months or quarters are better than others. Budget conservatively for the slower months.
Distinguish between essential and non-essential expenses.
Enter your budget items for the bills and other expenses that must be covered before you add optional categories.
Keep it simple.
Don’t budget down to the last paper clip. You risk budget burnout, and your reports will be unwieldy.
Build in some backup funding.
Just as you’re supposed to have an emergency fund in your personal life, try to create one for your business.
Make your employees part of the process.
You shouldn’t be secretive about the expense element of your budget. Try to get input from staff in areas where they have knowledge.
Overestimate your expenses, a little.
This can help prevent “borrowing” from one budget category to make up for a shortfall in another.
Consider using excess funds to pay down debt.
Debt costs you money. The sooner you pay it off, the sooner you can use those payments for some non-essential items.
Look for areas where you can change vendors.
As you’re creating your budget think carefully about each supplier of products and services. Can you find less costly alternatives?
Revisit your budget frequently.
You should evaluate your progress at least once a month. In fact, you could even start by budgeting for only a couple of months at a time. You’ll learn a lot about your spending and sales patterns that you can use for future periods.
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