The Psychology Behind Healthy Budgeting Businesses
Once your new business has reached the operating stages it’s time to lay out a financial plan to help you stay on point. While you may find it easy to get bogged down in the day-to-day running of your business, successful business owners know the importance of creating a well-defined budget for the months to come.
Why You Need A Budget
Matching and estimating revenue to your expenses can help you assess whether you have enough money to cover your operating costs, generate income to pay your employees and eventually expand. Without a budget you run the risk of spending more than what you’re taking in. You could also be short-changing your company by under spending and failing to allot the funds needed for growth.
A structured budget enables you to utilize resources which help increase profits. It can also allow you to see where you need to reduce costs and raise your return on investments. Implementing a plan for success doesn’t have to be time consuming or challenging. The psychology behind a healthy budget is that you’re aware of what is being produced, spent, and that it’s being communicated to the right people.
To prevent your budget from becoming a superficial task that you simply check off at the onset of a new year, your numbers need to pop off the page and make sense. It’s pretty difficult to make that happen if your record-keeping and auditing isn’t up to par. Even if you’re diligent with entering data, adding a budgeting and forecasting software program into the mix will make a world of difference that goes far beyond just tracking invoices and monies due.
The Truth Matters
When you’re implementing a budget, healthy businesses know that they have to project monthly income and expense figures to come up with a truly accurate outlook. Plugging in unrealistic figures isn’t going to do anyone any good – in fact, it can turn you upside down in short order.
One of the biggest mistakes business owners make with setting a budget is when they average out their expenses and income, allocating that figure across the year. Whether you earn the majority of your income during peak times or assess your expenses quarterly or annually, it isn’t going to give you a realistic picture. This can also lead to drastic cash flow mistakes for your company, with potentially long-term effects.
Do Your Homework
If you’re wondering how your business compares to the others in your industry, you need to dig down and research the facts. You can compare business budgets by researching sample financial plans on the Internet. You might also look through the most noteworthy trade associations’ outlooks and compare them to your own forecast.
While there isn’t any actual value in copying someone else’s budget plan, it will allow you to analyze where yours might stand out compared to the other businesses. If there are noticeable number variances, dig deeper to determine whether you have missed important elements – then make adjustments.
Watch Your Bottom Line
Making a budget and sticking to it are two different things. Successful business owners know that in order to grow a company, they need to adhere to their budget as closely as possible. To know how well you are accomplishing the goal of staying in between the lines, you need to update actual revenue and expenses in a timely manner.
Reviewing and analyzing your budget on a monthly basis is especially important to companies planning on growth within new target markets. If you don’t know where you are, it’s not easy to see where you’re going.
When you’re under budget, check to see if something was missed; if over budget, determine the causes and make any adjustments quickly. If you continually overspend, it’s like dipping into your savings each month to stay afloat – at some point the ship is going to sink.
Regular functions of a business can seem to run seamlessly, causing us to miss obvious areas in which improvements or changes could be of great benefit. These might include everything from our machinery and technology to our workforce.
It’s a wise habit to take a look ‘under the covers’ every once in awhile and look for ways to reduce costs. Being open to staff suggestions is always a good policy, as they may have ideas for more efficient procedures, or can sometimes more easily spot problem areas. Open communication also encourages loyalty and employee retention; ultimately another big savings for any company.
The goal of healthy budgeting is to ensure that your business is making enough profits to function properly, grow reasonably and stay ahead of the competition. While it may seem challenging at times to come up with the right figures, this essential process can help your business grow and flourish.
Laura O’Donnell writes smart content on behalf of the corporate performance management software professionals at True Sky. As an avid writer and learner, she loves to use her skills for engaging others in important topics in creative and effective ways. When she is not working, she loves meeting new people, traveling, and bringing her Pinterest dreams to life. Find her on LinkedIn at www.linkedin.com/in/laurajodonnell