A Leading Perspective

Pragmatic insights for the leader in you

Budgeting 101

A guest post by Bert Doerhoff, CPA

 

Budget?  You don’t need no stinkin’ budget!

 

WRONG! Of course you do!

 

You have started a new business, chosen a company name, developed your business plan, secured the loan and perhaps even rented the space.

 

Now what? You need a budget.

 

A budget is one of the most important tools in keeping a business financially stable. However, it can be difficult when you’re just starting to know how and where to spend your money.

 

Consider these quick tips:

 

1)   Think long-term AND short-term.
Preparing a budget for a small business is different from personal spending budgets.  For your new business, prepare a budget for at least twelve to twenty-four months in advance.  Moreover, consider having a budget “plan” for the next five-ten years. This type of preparation allows you to invest in unplanned opportunities or cover the cost of sudden expenses.

 

2)   Know the key components.
The major parts of a budget include sales, cost of sales, operation costs and resulting profits or losses. Though you may not have an accounting degree or be a certified mathematician, it is critical for small business owners to understand the key components of a budget and how they are interconnected.

If your profits are not covering your operation costs, then you know it’s time to make some cuts in expenses. Familiarize yourself with the money basics of owning a business; if you need help, employ a trained accountant or financial adviser.

 

3)   Revise, revise, revise.
Your budget should be a working document that is reevaluated every six – twelve months. If your business is growing rapidly or took a hit during a slow season, the budget should reflect that change.

 

4)   Do not spend money intended for Form 941.
Federal law obliges business owners to hold a specified amount of income from employees’ paychecks for Social Security, Medicare tax and federal income tax for each pay period. The company then has a certain “grace period” before it must report those finances to the United States government. As a business owner, it is imperative to keep these withholdings completely separate from other funds. Do not use this cash for investments or supply costs. Instead, place it in a separate account that you do not access except to file your 941’s. This practice will keep you from using money that is not truly yours to spend. It is a routine that will prevent your business from getting into a financial pinch at the end of the month.  Word to the wise, government penalty fees are not lenient in this situation.

 

5)   Talk it out.
Don’t be afraid to create relationships with other professionals in your industry or trade. Provided you don’t intend to damage that relationship and/or take advantage of someone’s generosity, you should consider having discussions about your budgets with those that have gone before you, even if they could be considered your competitor.

 

6)   Use the “JIT” method.
This is a strategy that’s successfully employed by a number of small business owners. “JIT” is an acronym for “just in time,” referring to the idea that you should always take out a loan “just in time.” For instance, if you anticipate that you will need $80,000 between January and August, do not apply for a $80,000 loan at the beginning of the year. Instead, apply for four $20,000 loans to cut down on the amount of costs you’ll incur in interest.  This “JIT” action will save you an impressive amount of cash in the long run.

 

About the Author

Bert Doerhoff is the owner and founder of Accubiz, a firm providing accounting services in Jefferson City, Missouri. Doerhoff founded Accubiz in 1978 and is an expert in small business accounting, business management and wealth management. He is also author of a book called, “Six Steps to Small Business Success,” which is designed to help young entrepreneurs with starting and managing a business.

Bert has submitted another blog for A Leading Perspective, Five Small Business Situations You Didn’t Expect.  Check it out – you just may learn something!

 

Bottom LineBudgetFinanceFinancial PlanningLeadershipRisk Management

Heather Kinzie • April 23, 2012


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