Business Budgeting For Dummies

Please keep reading only if;

  • You had a great sales month but, to your dismay, have no money in the bank.
  • Your business is growing fast but there is never enough left over to give yourself that raise you so richly deserve.

Or my favorite:

  • Opening your management accounts feels like scratching off a scratch card, you never know what you are going to get.

If you are still here, you are not alone. In fact, three out of four businesses that go to the wall this year will do so because they experienced some variation of the above but ignored the warning signs. Poorly managed cashflow kills, or as my wife was fond of saying, “Turnover is vanity, profit is sanity.” Yes. She really says that. We both need to get out more.

Now I have some bad news for you. This blog article is not going to tell you anything you don’t already know in your heart and soul. It might make you feel better about it, though.

Tweet this: Turnover is vanity, profit is sanity.

First, let met get out of the way and tell you about what you already know:

  • Business Budgeting will save you from going down in flames some day.
  • “Business budgeting” achieves the seemingly impossible task of making the word “budgeting” even less appealing.

I feel you. So let’s concentrate on something else instead.

Freedom!

I know you are the boss and everyone thinks you are the “bee’s knees”, but come on. You and I know you are an imposter. You don’t deserve all this success and surely your comeuppance is coming sooner or later.

Freedom from that sensation is just around the corner, and its name is business budgeting. Putting a budget in place and aligning it to how your business works will truly be the biggest step you have made to building the mythical “money machine” you always dreamed of.

Who knew such a fearsome feat could have such a boring name?

So how do you do that? Well, there are two old ways.

Top Down:

You take last year’s P+L and add 5% to each line item and call it a budget.

Some, slightly, more nuanced version of this is how most companies do it. It keeps you on an even keel and you then dish out the budgets to your loyal lieutenants, bestowing each the promise of autonomy and the threat of obliteration if they mess up. Or, is the obliteration thing just my style?

This is the best bang for your buck. It will most likely get you halfway to avoiding the poor house some day.

*Pros*:

  • Doing it fast
  • Probably fairly accurate

*Cons*:

Einstein didn’t say it best “Doing the same thing over and over again and expecting different results”?

Bottom Up or ” zero-based” budgeting:

With more time on your hands, you can go through each P+L line item and build up what you need from first principals. Put the “big rocks” in first list salaries and rent and slowly get quotes and estimates for other expenses as you go.

Your top lieutenants will help you along the way here and it is a great way to get buy-in from the entire team on how the business is run, giving them ownership of their particular line of items.

*Pros*:

  • More buy-in from your team
  • Can drive you towards business objectives

*Cons*:

  • More time consuming
  • Staff are not incented to come up with small estimates

Mostly, budgeting puts a firewall around your business. It empowers your team and will give you a greater sense of calm that you didn’t think came with the territory of being successful.

Implementing your budget is the next step. Rubberstamp.io is a great place to get started with that. Take your freshly minted top down or bottom up a budget, pour it into our software, divvy up the responsibility, and never fear to open your management accounts again.

Reach out to me and I’ll show you how.

Originally posted: By James Kennedy on Mar 24, 2017

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