Whether you've just decided to start your business or you've been up and running for some time, you know that your budget is integral to everything you do. There won't be a single decision you make that won't be influenced by your business budget. Knowing how much money you have available is going to determine everything from when you should launch your business to when you can grow your business and how to go about it all.
The thing about your business budget is that it's not always as easy as "I have $-- in the bank and my bills each month are $--." In fact, in business, it is never so cut and dry. Believe me, I've been building budgets since I started getting an allowance when I was a kid. The thing you should keep in mind is that you can expect to have to pay certain bills every month. Things like rent, certain utilities, and employee payroll tend to be easy to plan for. It's the unexpected that can throw your budget for a loop. A huge contract or order that comes suddenly, an unavoidable stoppage that affects your production levels, or employee turnover are all things that can come out of nowhere and affect your long term plans, and your budget.
Understanding your budget and how to build your budget is going to be the driving factor in keeping your business running smoothly, even when the unexpected happens. As the leader of your business, you need to keep three key things in mind when it comes to your budget.
1. How much money is coming in?
Knowing what your revenue stream is, and how much is available to you at any given time, is going to give you the flexibility to quickly and effectively address the unexpected, whatever it may be.
Read More: Cash Flow 101: Tips for Management, Projection, and Long Term Improvement
2. What does my resource allocation look like?
Being able to know how much of your budget has been allocated to each function within your business is going to allow you to re-allocate on an as needed basis. If you need to hire more people or increase your production to accommodate that huge contract or order, maybe you can re-allocate from another area, such as sales and marketing to meet these new demands.
3. What are my plans vs. what are the business's realities?
You are going to have big plans for your business. You may say you want to double your monthly recurring revenue in the next quarter or you want to be as big as Google with your very own "campus" over the course of the next 5 years. These are all great, but you need to consider the reality of your resources and what it will take to get where you want to be.
Your budget will be a living breathing part of your organization. It will change as your business changes. Knowing this, you or someone you trust to manage the financial side of your business must be constantly aware of the state of your budget and when to update it. If your business is experiencing rapid growth, you will be rapidly adjusting your budget to account for it. And if you are planning for future growth, you will find yourself creating a more long term budget that will act as your roadmap to resource allocation to drive that growth.
Don't forget to consider your historical data. Two of the most important things you will need to think about when building your budget will be your sales projections and your people costs. A CEO or the sales team will be the most qualified to provide sales projections. When it comes to developing these projections, being able to see where your numbers were a year, a quarter, or a month ago will play a significant role. And as far as people costs, you should also refer to your past payroll trends to help you understand what will be needed to scale your team to meet your business's needs. Your historical data is the best resource you have when it comes to understanding where your business has been and plan for where it is going.
Running your business efficiently will also depend on your understanding of your major levers. Leads, bookings, billings, and growth factors are going to impact your assumptions and guide you in your business planning. Consideration of the factors are going to influence your budget and ultimate growth goals.
As I stated in the beginning, developing your budget is not cut and dry. There are many things to consider, and it requires a you to think strategically about your business, resources, costs and revenue. For more information on budgeting for your business, and to request a free consultation, click here.