Many companies and individuals spend time creating and monitoring a budget. You know how it goes–if you’re a company, you look at your sales, and if you’re a person, you look at your pay stubs. Then you look at your bills. You think about how you want to save money. You wish you could save more, so you decide you’ll tighten your belt. The result? You come up with a budget that could only be followed in a world where nothing ever goes wrong and you never have to deal with surprise expenses like brand new tires for the company car or braces for your kids’ teeth. This is because you’re budgeting based on assumptions and emotions.
Numbers don’t lie, so creating a budget based on hopes and dreams in a perfect world generally does not work. However, when you create an honest budget, it can be the tool that makes hopes and dreams come true, and allows you to run your business successfully.
Here are 4 steps to creating a budget that you’ll follow:
Clean up your accounting. A budget is a powerful tool, if you have clean accounting. You need to have all the expenses falling into the right slots so the numbers come up in the right places and you begin to understand where your money is being spent. If you don’t have clean books, contact us today!
Look back. Rather than creating a budget based on bills and what you “think” you’ll spend money on, simply look back at the past 6-12 months and use that as a template for your new budget. (If you just started with Ten Key and you don’t have 6-12 months of clean books to look at, call us to conduct a writeup project. We can move your past financial records over to QuickBooks so you’ll not only have a fresh start, you’ll have some history to go by for these purposes.)
Understand your cash flow and work with it, not against it. To understand the timing of your cash flow, here’s a trick I use: flip your profit and loss report to ‘cash’ and total it by month. Historically, this will tell you when your clients pay you. If you know the seasonality of your business, then you can use that powerful knowledge in your favor. For more in-depth cash flow analysis, call us.
Review periodically. Budgets need to be living, breathing, evolving documents. Don’t let your budget fossilize. We conduct quarterly reviews with our clients to ensure you’re on track. Adjustments may be necessary, but that’s part of the process. You need your budget to work with you.
Using these 4 easy steps, you’ll create an accurate budget. With clean books and budgets, the power to understand your finances and achieve your goals is within your reach!