Budget: A Necessary Part of a Good Business Plan

By Cheri Alguire

With the constant bad news about the economy, everyone is talking budget these days as if it were a new and exciting phenomenon—just discovered!

• How to save a buck
• How to budget for a successful future
• How to make your dollar stretch the farthest

The truth is that there is nothing new, trendy, or sexy about budgeting. A well-planned budget is simply the most practical aspect of your business plan—and one of the most important. It’s also not that much fun. But if you think about it, if you have completed the other parts of your business planning guide, you’ve done the hard part already. You’ve already analyzed where you spent your money last year and how well it returned your investment. You’ve articulated the vision for your business in the next year, five years, and ten. You’ve written down the action steps to achieve that goal. Now it’s just a matter of the numbers.

The easiest way to tackle this job is with a good software program like QuickBooks, but you can also manage the old-fashioned way, by hand on a chart, if that’s what it takes to get you started. The budget records your total income, gross and net. It includes the numbers for your current expenses, plus those you anticipate adding under your new vision. It breaks down the expenses and itemizes them so that nothing is overlooked, creating a potential drain on your cash flow down the line. And remember: cash flow is the goal.

When the numbers are complete, if you don’t like the result, you need to remember to reevaluate the plan. If your marketing exceeds your income, for example, then you must make a decision: slash the marketing budget or make more money. Either way, your budget needs to “show you the money.”

Approach #1: Gary Keller reminds us to “lead with revenue” when budgeting. He cautions only to spend the money that the business has generated and avoid the “Field of Dreams” mentality of expecting business to materialize if you spend enough money on marketing, desk staff, quality equipment, etc.

Approach #2: Write down the number of marketing dollars you will need for the next year to reach your goal then do the math. How many lists will you need to carry in order to create that cash flow? How many will you need to sell? How many buy sides? Those are your numbers to live by.

Truth be told, a combination of these approaches is probably the wisest course, but regardless, the budget is the budget and you stick to it. (That’s the unsexy part.) But don’t worry about that because this axiom can serve you well when some annoying vendor tries to convince you that you really must buy his refrigerator magnets by the gross with your logo embossed on them in order to be a success at the next home show. You now have your ready-made excuse: “oh, we set our marketing budget last October.”

The budget might not seem to be your best friend at times, but it should be your wisest adviser—the one you trust with your most important decisions. Accordingly, spend enough time with it to do it, and yourself, justice. Your business, and your profit/loss statement, will thank you.