The Power of a Simple Budget - Part 1
My wife is in the planning stages of starting her wedding planning business and she came to me and asked, “I don’t really need a budget, do I?” I stopped what I was doing, thought for a minute, and then said, “A budget may be the single most important thing you can do because it will let you look into the future so you can make the best possible decision now!”
A Picture of Financial Health
We continued to discuss the importance of a budget for brand new businesses as well as established businesses. Common reports such as the profit and loss report and balance sheet tell you how your business has done over a period of time. A simple budget uses those reports as a baseline and then allows you to look into the future to find out information such as:
How much are you going to spend to operate your business?
How much money is available for me to pay myself or other shareholders?
This knowledge alone is incredibly useful as it allows you to plan for when you will get paid and the best time to incur expenses. But what if you don’t like the picture the budget is painting?
What if You Want a Different Picture?
We now know that a budget will paint you a picture, given your past, of what you can expect in the future if everything stays the same. Maybe the picture used to be acceptable but now you want to grow faster and make more money. A budget gives you the power to test out different scenarios and how they will affect the financial health of your business. A few examples of different scenarios you could test out using a budget by changing a few numbers include:
What happens if I increase the price of my service by 15%?
What happens if my biggest client goes out of business?
What happens if I change locations which will reduce expenses by 20% but it will result in 10% fewer sales?
A simple budget can be the masterpiece of a successful business owner’s toolbox. Not only will a budget give you the tangible benefits of seeing the future financial health of your business, it also gives you the intangible benefit of confidence. You no longer have to wonder, “Will I have enough money for payroll next month?” or “Can I afford to purchase that new work truck?” A budget gives you the power to look into the financial future of your business so you can make the decisions you need to run your business with confidence.
Ask for Help
While a budget doesn’t have to be complicated – it can still be a daunting task to undertake. Do not hesitate to reach out to a trusted advisor such as a mentor, accountant, bookkeeper, or consultant who can walk through the process with you. The time or money you spend on a budget will surely pay dividends for years to come!
Check back the week of October 8 for Part 2 where we dive deeper into what actually is included in the budget. In the meantime, be sure to read our other blogs that will be written by Kyle Parker and Benjamin Record as well as listen to our Propell3r Podcast, where we talk about our blogs and interview business owners, professionals, and influencers about their businesses and lives!