An important lesson I learned as a young adult was managing my finances. It wasn’t easy since I worked full time, while attending school and I was dazzled by the city and all that it had to offer the young and restless. Thirty years later, I’m still managing my finances and creating a budget for my business that allows for financial security for my employees as well as planning for future growth. As many of you know, running a business often requires owners to judiciously plan and review their finances. Most companies use some form of accounting for identifying, measuring, analyzing and reporting their financial information.
It’s a basic rule of business – before you can make money you have to figure what you need to achieve success. Basically “how are you going to spend it”? Drafting a budget is an important procedure to help you turn your visions for business success into reality. Mark Wood, CEO of Cuisine Studios, an exciting new corporate and social catering company, dedicated to healthy delicious foods, told me that he created a detailed budget when he joined the company. Woods committed numbers to paper, because he understood that his chances of succeeding improved exponentially if there was a solid roadmap. His plan included immediate and future needs, spending, profits and cash flow. His biggest budget item, like many other businesses is human capital – hiring the right people. “There is nothing more disruptive and costly to a business than hiring the wrong person” Woods goes on to say that 25% of the budget goes towards creating buzz for his brand on Facebook, Instagram, networking and promotions. Cuisine Studios plans on hosting 10 dinners in the next couple of months in hopes of wooing corporate decision makers and event specialists that Cuisine Studios is the best in service, elegance and creates healthy delicious food. “
It’s like a roadmap for your company,” says Darin Webb, of The Bookkeeping Company of New York City, who provides accounting and consulting for small businesses. “You need the roadmap to understand where you’re going with your business.”
Conversely, if you don’t have the discipline to sit down and assemble a business budget, you may not have insight into how your business is performing from year to year, whether there are cuts you can make to improve performance and whether you have the needed funds to purchase new equipment — be it computers, software programs, machinery or new office space. “It’s like being in a car without a map or GPS system,” Webb says. “You hope you’re going in the right direction, but you don’t know.”
While meeting with Rory Golod, VP of Business Development at fancy.com, an online place to discover, collect and buy from a crowd-curated catalog of amazing goods, wonderful places and great stores, he shared his concern of “hiring the right people for growth, who fit his corporate culture”. He stated that “talent is essential to growth”, which is why Golod has created a realistic budget for hiring key members of the team, while understanding current market salaries. As we parted, Golod emphasized that the most important aspect of growing fancy.com is “hiring the right people”.
Budgets usually represent a thorough analysis of how a company anticipates to spend money in future time periods. Many companies create budgets on an annual basis so they can carefully outline the expected needs of each department in the business. Using an annual budget process also limits the amount of time companies spend creating and managing capital resources. Although larger companies may have employed accountants or other professionals to create the business budget, small business owners are usually responsible to complete this function themselves or hire boutique accounting firms such as The Bookkeeping Company of New York City.
The bottom line on why to draft a budget for your business is that it will help you figure out how much money you have, how much you need to spend, and how much you need to bring in to meet business goals. But there are other reasons, too. Bankers and other financiers may want to see a budget when you ask for a loan. Employees should also be privy to the budget so that they understand where the business is going and are motivated to work harder. Additionally, budgets can also help you minimize risk to your business. A budget should be created before you sign a new lease or invest in new machinery or equipment. It’s better to find out that you can’t afford new office space before you commit to spending a certain amount of money every month. According to the U.S. Small Business Administration, a budget can be used to indicate some of the following:
• The funds needed for staff and/or materials.
• For a new business, total start-up costs.
• Your costs of operations.
• The revenues necessary to support the business.
• A realistic estimate of expected profits.
Creating a budget is not a science, it’s basically common “cents”, so be prepared to make adjustments thought out the year. You may have set your sales figures too high or you didn’t anticipate machinery breaking down. The life of your business will experience ups and downs and your financial planning should accommodate slumps and falls.