The Lucky Sevens of Budgeting

I recently wrote a post about planning, and quite honestly, it feels very incomplete without also addressing budgeting. Planning and budgeting go together like peanut butter and jelly – or for those with peanut allergies – cookies and cream.

Whether at home or in business, a budget is a necessity. Learning to live with a budget is an education in and of itself. It is a form on restraint to determine where your money as well as time should be spent. Budgets can be overwhelming at first, but once you establish one, you start to view it as a monthly planning tool that can move you to the next level of success. Here's your lucky seven's to budgeting:

1. Have a budget. One of the biggest mistakes most small businesses make is failing to budget. A budget is a planning guideline to direct your activities. How do you know where you should allocate your resources if you don't have any idea where your resources are going?
2. Build your budget around your mission and vision. Your business is built on your mission and vision. Your budget should be no different. It is built on your reason for being on business and your reasons for moving forward.
3. Know how to budgestimate. Yes, I said budgestimate. (For those of you who are just getting to know me, this is what is called a Julie-ism. It's kinda like a singlet.) Budgestimate are just as they sound – a budget estimate. And, that is what a budget truly is. It is a compilation of intelligent estimates of your income and expenses. This is actually the first rule of small business accounting: budgets are a best guess estimate. Chances are you will miss the mark when it comes to accuracy in budget. However, if you apply educated estimated guesses, you start to learn where your price points are and learn to adjust accordingly.
   
4. Be flexible. Knowing that budgets are based on budgestimates, you can draw the assumption that budgets must also be flexible. You absolutely must be able to adjust your budget based on actual expenses. If you budgestimate that your marketing costs are $200 a month, but they regularly come in at $250 a month, then by all means be flexible enough to adjust your budget. The same goes for the opposite, if that same marketing budgestimate comes in at just $150 a month, then adjust it down. Additionally, if you revenue exceeds your budgestimate, then it may be time to invest in some new equipment or marketing tactics. On the flip side, if your revenue isn't quite what you expected, then it is time to trim expenses. Whatever the situation, be flexible with your budget.
5. Be aware of your cash inflow/outflow. Bottom line – make sure your outflow matches your inflow. Obviously, there will moments when your outflow exceeds your inflow. Like the saying goes, you need to spend money to make money, right? However, just make sure you make this exception rather than the rule.
6. Be conservative. I once heard someone say that if you wanted to make it in business, you needed to double your expenses and slash your revenue. If you still felt this you could make it with this thought, then you are doing pretty well. Being conservative follows this line of thinking. Over budgestimate your expenses while under-budgestimating your income. Additionally, be conservative enough to save enough money for a cash cushion to carry you through periods of inactivity or unexpected, but necessary expenses.
7. Question everything. I'm going to repeat that. Questions everything. As a small business (actually whether you are big or small), you must question everything. I may sound like my grandmother, but remember that money doesn't grow on trees, people. You absolutely must question each and every expense. No matter what, question it to know if there is a lower cost, more effective solution.
8. Okay, I know I said this was the Lucky Sevens of Budgeting, but I just couldn't eliminate number 8. Review your budget every month. Your budget is an integral part of your business that needs your attention. Set aside a regular planning time each month to review your budget.

To your financial success!

JWS