How to Budget Effectively in a Small Business

by Alex Feldman

February 6, 2019

All businesses depend on the figures in their budget to inform their decisions and monitor their progress against expectations. The budget is a key part of your business plan, and every action you take in your business will start with a check of the numbers to see how the budget will be affected.

Given that the budget is such a critical tool in your business, can you honestly say that it gets the attention it deserves? Or once created for your business plan, was the budget set aside, only to be referred to once a quarter, or even more infrequently?

If you’re not keeping your budget at the forefront of your business management, you’re missing out on valuable information and affecting your bottom line, so dust it off and go over it now, using these tips to guide you into making better use of your budget.

  1. Check your expenditure and get the figures up-to-date. When you first entered your figures on your budget spreadsheet you hadn’t begun trading, and there could be many figures that have worked out differently than you predicted, like materials costs or advertising. Check through each one, and compare every expenditure listed with what it’s actually cost you so far. Amend all your figures, but keep a copy of the original so you can compare your predictions to your actual expenditure.
  2. Check your fixed overheads. You will have made educated estimates on many of your costs, which you’ll now be able to update using the bills you’ve paid. When utility bills and other overheads need paying, they tend to be signed off without too much consideration of the rates you’re being charged. Now you have the actual bills, so compare your estimated costs with what you’ve been billed for. Every outgoing should be reassessed regularly, for example, check the rates offered by business gas suppliers to save money by switching.
  3. Check your income as predicted on your budget with what you’ve taken so far. If the numbers vary significantly, do some investigating to find out why. If you’ve taken more than you’d predicted, where has the extra money come from? Were you conservative on the initial budget, or has something changed that’s made a difference? If you can identify the cause, you may be able to capitalize on it and increase your income further.
  4. Check your net profits. This is the figure that matters above all others because it is what you clear after all other expenses are taken care of. This is how much money you’re actually making; you could be achieving sales in six figures, but still only be making little out of them after your expenses are taken care of. If net profits are lower than expected, compare your initial budget and the newly revised version to see where your predictions went wrong, and take steps to rectify the situation.

There’s a wealth of information in your budget that helps you keep your business operating smoothly and at optimum efficiency, so make a point of keeping it updated and checking the information it tells you about your business.