"An entrepreneur tends to bite off a little more than he can chew, hoping he'll quickly learn how to chew it." – Roy Ash
When starting your own business, there are all sorts of things to worry about: finding a space that is affordable and big enough to suit your needs, finding new clients and organizing all of their information, hiring staff, and so forth. However, before you can do any of that, you should figure out a budget for your business, in order to be sure that your finances stay in order and your company moves forward.
Victor Butcher of Butcher Financial Service in Memphis describes running a business without an existing budget as "like being in a car without a map or GOS system. You hope you're going in the right direction, but you don't know."
"It's like a roadmap for your company," said Butcher, former president of the Tennessee Society of Certified Public Accountants' Memphis Charter. "You need the roadmap to understand where you're going with your business."
Why is a budget so important?
In addition to tracking how much cash you have on hand, business expenses and revenue, a budget allows you to anticipate future needs, spending, profits and cash flow. A well-organized and accurate budget will also help you to spot problems before they become problems, so you can stay on top of your business at all times. Once you have a strong understanding of your finances, you will be better able to plan for the future.
In addition, if you ever need to go to a bank or speak to a financier, you will have all of your company's vital financial information well-organized and ready for use. This will not only make such trips easier overall, but will give a good first impression of you as a business owner, which may well work in your favor.
Okay, so how do I get started?
The first step for creating any budget, whether personal or professional, is to start tracking all of your income and all of your expenses. The easiest way to do this is to create a spreadsheet—Excel is an excellent program for this—and scrupulously track every penny that comes in and goes out. There will be fixed expenses (rent, loan payments, pre-paid costs) and variable expenses (utilities, supplies, etc.). If you are new to your business and don't know what these numbers will be, do a little research and find an average.
Try to be as comprehensive in this process as you can be. Ideally, you should work out a complete budget prior to beginning operations, and your budget should cover 12 to 24 months of business operation. If you are starting your budget with estimated numbers, be sure to adjust your budget as needed every month until it is as accurate as possible.
What if my budget falls short?
There's nothing worse than running a business that is in the red every month. This tends to make your employees distrustful of whether they will get a regular paycheck, and makes you look bad to consumers. If you have created your budget and it looks like this will happen, then start to look for ways to cut costs.
This can be done in a number of ways. Many traditional business needs, such as HR and
Okay, I've done all of this. What's next?
Once you have your budget created and are reasonably sure it will be sufficient to sustain your business, then it's time to get the ball rolling. Find your space, hire whomever you need to hire, and start building your business. Keep a close eye on your budget and adjust it as needed, until you have a finely tuned, highly accurate budget that reflects your income and expenditures.
If at any time you find that your budget needs an overhaul, whether for unanticipated financial circumstances or simply to revamp your business, make it a priority. This will ensure that your business continues to run smoothly and grows as needed. It's difficult enough to start your own business. If you have your finances well in hand, then you won't have money worries on top of everything else.