Budgeting – Loathe it? Love it? It’s one of the most essential business practices you can undertake. As a business owner, you should have a budget for your practice and as much as you can, stay under budget. This will lead to more profit and less expenses for you. But what happens when you forget to budget for something? Or, keep going over on a certain category. Continuing along from our last article, read along for the solutions to 4 small business budgeting questions.
Question #1 – What categories do I need in my budget?
Getting started on making categories in a budget can be overwhelming. Of course you will have obvious categories such as rent, utilities, loans, salaries etc. But what else needs to be added? A good place to start is to look through your financial transactions for the last few months (Use a bank statement or bookkeeping software if you have it). This should give you a good feel for around how much your practice spends each month. Make a list of what you spend money on.
Go through your list and write down the transactions that happen monthly, they will be added to every month’s budget. Also keep in mind the expenses that happen bi-monthly or less frequently, they will need to be planned for as well. Expenses like professional organization dues, insurance, and license fees can be easy to forget. The important thing to remember is that your budget will not be perfect. It will need to be refined and changed as the months go on.
Question #2 – What do I do when I go over budget in a certain category month after month?
The simple answer is, change your budget. Of course this may not be the root problem. If you’re routinely spending more than you would like to on certain expenses, make sure to sit down with your team or bookkeeper to figure out how to minimize costs in this area. Some costs may be able to be cut, great! If not, raise that categories’ budget and see if you are able to cut costs in any other budget category to make up for your raised budget.
Question #3 – What do I do when I go over on my budget or have money left over at the end of the month?
It’s very likely that you will go over on your budget. Don’t panic. When you go over on your monthly budget, check to see what costs can be lowered (just like in question #2). It’s also possible that transactions were not entered into the correct category, take a quick lot through the transactions to make sure they’re all sorted correctly. If it’s not possible to cut your costs, raise your budget as minimally as possible. This is a fine action to take as long as it does not keep happening!
On the other hand, if you came in below your budget, you have a great problem on your hand! Use the extra money to invest back into the practice, buy new equipment, give your staff a bonus, or donate to a cause close to your heart. This is truly one of the best parts of using a budget, having “bonus money” left over at the end of the month. Either way, it’s very likely you will go either over or under your budget, don’t sweat it! Adjust the budget to the best that you can and continue on.
Question #4 – What’s the best way to keep track of my budget?
Now that you know what categories you need and what to do when you go over/under on your budget the question remains as to how to track it. If your practice uses bookkeeping software (Quickbooks, Xero), the software will have a built-in budgeting area in which you (or you and your bookkeeper) can simply add in categories for all of your accounts/categories that are already created in the software. If you are not using bookkeeping software (you should), there are many free pre-made spreadsheets that can be used/modified for your liking.
Love them or loathe them, budgets are key to your businesses’ financial future. Learn to love budgets and you’re one huge step closer to financial freedom for your practice.