Ways to Make a Budget Work
By Jeff Wuorio
If you build it, stay with it. Put another way: If
you've put in the work and created a business
budget, follow it! If you don't, you'll lose the
benefits that you planned for when you built the
little monster. Jeff Wuorio has the inside scoop on
common problems and easy solutions for established
Get started by reminding yourself that your business
budget is not a monster. It's nothing more than a
set of guidelines for your spending and saving
habits. Below, I've laid out some common problems
that pop up with many established budgets, along
with some solutions that can help you stay within
1. Accept the learning curve.
Living with a budget is an education. Trimming your
expenses, knowing how long a paycheck is going to
last or how much of a cash reserve to keep
aroundóworking these skillfully will take some time.
But you can learn to adjust a budget as you go, and
what was once a shot in the dark gradually will
become a more predictable and useful practice.
2. Be prepared to miss your budget estimates and act
This was rule No. 1 in setting up a budget: knowing
that your budget projections are a best guess and
nothing more. Notes Mark Weaver, associate professor
of management at the University of Alabama: "You're
going to miss your estimates. That doesn't make you
unintelligent or a bad businessperson. Instead, try
to miss them intelligently and in ways you can
For example, if you budgeted $200 a month for
long-distance phone service and your bill
consistently tops $250 - say, for at least three
months running - adjust your phone allocation up
$50. By the same token, if the bill is only running
an average of $150, you can trim your phone share.
To keep things in line as much as possible, try to
reallocate some other area of your overall budget to
account for the adjustment.
3. Work flexibly.
As with setting up a small-business budget, sticking
by one often boils down to a willingness to be
flexible. For instance, if your revenue doesn't
match what you expected - and there's a good chance
that might be the case - trim back your expenses to
compensate. By the same token, if you're taking in
more than you anticipated, it might be time to
invest in better equipment.
4. Watch your cash flow.
If you want to stick to a budget, make sure that
your inflow more than compensates for your outflow.
Monitor your income closely to make certain that
you'll have adequate funds to pay your bills,
particularly if your business is prone to long
lapses between paychecks. Notes Weaver: "Even if
it's just from the left pocket to the right pocket,
cash-flow problems are what kill most small
businesses. Keep checking
to make certain that your revenues match your
5. Err on the side of conservative.
When setting up your budget, it's a good idea to
overstate your expenses and lowball your expected
revenue. That approach is also a solid
strategy when making sure your cash flow is going to
hold up. Look into budget savers such as telephone
calling plans, less expensive office furniture and
other ways to lessen the burden on your income.
"People always feel they have to have the best
computer," says Weaver, "but money you don't spend
is money you don't have to earn."
6. Nurture a cash cushion.
The uncertainty of budgeting - both in terms of
income as well as expenses - stands as one of the
biggest threats to the survival and success of any
small business. While trimming expenses to the
absolute bone is always a good idea, it's also
prudent to set aside income whenever possible. If
you can afford it, earmark a portion of every
paycheck you get and sock those funds away in a
money market account. Not only
can that money come in handy for predictable
expenses such as year-end taxes, it also can prove
an absolute lifesaver should an unexpectedly high
bill suddenly crop up.
By contrast, if you're thinking about starting a
business sometime in the future, start saving - the
money you set aside now ultimately may bail you out
in ways you can hardly imagine.
7. Check your budget every month.
This is a point that I cannot stress enough. Go over
your budget every month and examine your cash flow
to make certain your available
funds are sufficient to meet your liabilities. If
you're following point No. 2, above, and adjusting
your budget as you go, you'll have some sort of
emergency fund to take care of monthly overruns. Use
it when things cost more than you thought and put
money into the contingency fund if you come in under
your expected numbers.
8. Use your budget as a form of restraint, not
Setting up and sticking to a solid budget is the
most effective teacher of fiscal discipline there
is. But don't be shy about busting your budget on
occasion should something truly warrant it. It's
often impossible to budget for a valuable
last-minute seminar or a trip to a trade show to
make valuable contacts. If you are too rigid with
your budget, you'll refuse to spend when you really
should. "Don't be afraid to go beyond your budget to
spend money that's a valuable investment in your
business," Weaver says. "A good budget is great, but
don't let it dictate your business."
Wuorio is a veteran freelance writer and author
based in southern Maine. He writes about
small-business management, marketing and technology
issues. Article originally published by Microsoft
Small Business Center (www.microsoft.com).
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