This seems like a simple concept but let me give you a bit of a working definition of exactly WHAT a budget is. That way maybe you can understand WHY you should create a budget for your business.
WHAT is a Budget?
A budget is an INTENTIONAL spending plan for your business. It gives you spending parameters that you are working to stay within. It gives you goals or targets to meet. It creates a plan. It gives each dollar you earn a specific job.
In business I think we can all agree that you are way more successful if you are intentional in your actions. If you’re wandering aimlessly with no target then I guarantee you’ll spend more than you intended to and end up feeling like you have very little to show for your efforts.
WHY should you create a budget for your business?
WHY go through the pain of creating a budget? Well there are a few reasons and I’ll share them with you.
Truthfully for me it’s not painful, it’s interesting. I think Curtis would rather run 100K barefoot and naked in -50degree weather. (Note from Curtis: Yes I would. I know they are good but I hate doing them.)
As a business grows it’s only reasonable that the expenses will also increase. HOWEVER I think that the end goal of any business is to MAKE money and be PROFITABLE. It’s really easy to say – oh, I made x extra dollars this month I can afford to splurge on Y app, or Z hardware item etc. etc.
Unfortunately in doing so you are directly decreasing the profitability of your business. In some instances you may unwittingly be taking food from your kids mouths. No one wants to work just to pay the bills, but if your expenses are out of hand and your business isn’t really making a profit then that is all you’re really doing.
I know, sounds funny. Most people associate a “budget” with this tight, chaffing, uncomfortable thing that restricts your fun. We have certainly found personally that a well thought through budget offers a lot of Freedom. I think that Curtis will find the same in the upcoming year as he works on keeping the budget for his business.
Now that coffee you just bought is GUILT FREE. Why? You have intentionally set money aside for “entertainment” each month. The money is THERE. You are free to spend it, no strings attached. You know what your other monthly expenses are and you know that the money is there to cover them. You aren’t buying coffee then hoping that you still have enough to pay the internet bill. You are free to spend that money on coffee because it’s job is to buy coffee.
MMMHMM. I said it. Accountability. When you are working on your own this is especially important. There is no accountant, comptroller, manager, or corporate office telling you that you can or can’t spend the businesses hard earned funds on the latest Angry Birds. So you “splurge” and spend the $9.99 (or whatever it is) on the game. You work hard, you deserve it right? WRONG.
“Rewards” are important in business as they can be huge motivators for nailing that big contract, or hitting an income goal but there still needs to be some accountability for where that money is going. It’s EASY to “reward” yourself here and there with small app’s, books, treats, and other items but these expenses add up and ultimately detract from your businesses profitability.
When we sat down and looked at Curtis’ software expenses for 2013 we very quickly identified about $1000 spent on small apps that he was going to try to use for this that or the other but that hadn’t worked out the way he had hoped.
There needs to be room for that kind of experimentation in his business. We were able to come up with a number that gives him the freedom to try new tools with some regularity but he is going to have to be a bit more intentional about how he spends those dollars to stay within the budgeted amount. The realistic assigned dollar figure for his software column gives him a little bit more accountability while also leaving some cushion.
I’ve mentioned profitability but it deserves some attention here.
Why do you run your business?
Just to pay your bills?
If you are simply working to pay your bills and just scraping by you have a few problems:
- You aren’t running a viable business and you have some things to work on.
- I’m going to guess that you’re not having much fun. You basically own your job.
- You have no cushion, and you probably feel stressed about it when you sit down and think about it.
Being Profitable is the POINT of running a business. Once your business starts to be profitable (that means expenses paid, taxes paid, salary paid, and my oh my there’s money left over at the end of the month) then things start to get fun. You start to have incredible freedom (ha funny how that ties in here).
You can start to choose your clients rather than taking every job that comes along.
You can start dreaming.
You can start specializing.
You can start focusing on really growing your business.
You will feel like a huge weight has been taken off your shoulders when you look at your business bank account and realize that next months salary is already accounted for.
You will make better decisions.
You will do better work.
Your business will grow.
Don’t believe me? Fine, but I’m telling you we are the living truth here.
Having a BUDGET for your expense allows you to ensure that your business retains some PROFITS. When you have a set amount that you are going to spend and you cut off spending once that amount has been reached then you are allowing your business to have some PROFIT and as you continue to budget your profits will GROW. WOW what a concept.
So, the main reasons for creating a budget? Freedom, accountability, and profitability.