Email: elisabeth@insideoutaccounting.com
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Creating a Budget for a Small Business: Why You Should Be Excited!

The biggest mistake I see owners make in creating a budget for a small business is nitpicking every tiny expense instead of focusing on the real goal of small business. The goal of your small business is not to save money on office supplies, or get the absolute cheapest law firm in the world to draw up your incorporation documents. THE GOAL OF YOUR BUSINESS IS TO MAKE MONEY!

I once worked with a financier from New York, an old-school guy who had probably worked on a hundred different investment businesses in his life. He said, “We can cut costs down to $0 by closing up shop tomorrow, but that’s not what we are trying to do. We are here to make money, and that means we focus on revenue.”

I can see my clients’ shoulders drop with relief when I let them know that I am not interested in telling them that they have to switch to a cheaper cell phone, or go out to lunch less often. I don’t care about their coffee stipends. I care about their top lines, and if I look at expenses, I only look at expenses that represent more than 10% of the revenue.

Leave the tedious and miserly budgeting (line-by-line, slash everything by 25%) to the government agencies :). Small businesses in the private sector can’t bring in more revenue if they are slashing the marketing budget. An entrepreneur can’t focus on growing their business if their job description involves everything from approving the work orders to taking out the garbage and cleaning the bathroom.

I encourage my clients to focus on the thing they focused on when they started the business. How much money do you NEED to make? How much money do you WANT to make?

In creating a budget for a small business, we always start with how much money you NEED to make. We make a breakeven budget which accounts for revenues and expense levels that keep your business from going into debt. We put this budget together so we know the rock-bottom line. This budget includes a minimum amount of owner payroll or draws needed for you (the owner) to live, because breakeven means that neither the business nor the business owner go into debt.

Next we do the fun part of creating a budget for a small business. We talk about how much money you WANT to make, and this is NEVER (EVER) the same amount as what you NEED to make. How much you want to make takes into account your personal savings, an operating savings account, a payroll savings account, a retirement savings account, a tax savings account, and a vacation savings account. We talk about how much money you want to make so you can live the life that you want to live, and so you can sleep at night without thinking that if your big client doesn’t pay you in the next 10 days, you won’t be able to cover payroll.

 

Creating a budget for a small business

…isn’t about saving small, it is about DREAMING BIG! We create a PROSPEROUS and ACHIEVABLE vision for your company, and then we make a plan for knocking down everything that stands in the way of those goals.

Budgeting is scary to most small business owners because in our society budgeting is always associated with having to scale back operations. It is usually about cutting costs instead of creating revenue opportunities. Now is the time to reset your expectations and see that creating a budget for a small business can and should be a time to GET EXCITED about your business again.