How to Budget for Your Content-Driven Business
You’re an entrepreneur, right? You want your business to make you lots and lots of money, don’t you?
Do you have a business budget? Well you NEED one, Superstar, if you want to be the incredible, money-makin’ machine everyone envies.
An effective budget is the key to real profit and profit, as every money-savvy superstar knows, is the only way to measure the success of your business. Profit is the money you keep after taxes and expenses, after all. A million dollars in revenue means nothing if you also spend a million dollars every year. Only businesses that are wise about their spending are profitable, successful businesses.
Which is why you need a business budget. A budget allows you to prioritize your spending and manage your money. It is a tool that allows you to quickly identify wasteful expenditure, adapt, and achieve your monetary goals. Budgets are so important, in fact, that board members, investors, and banks will all ask to see your budget before doing business with you.
Not all budgets are created equal, however. Anyone can slap some numbers on a page and call it a “budget.” I’m here today, Superstar, because you deserve better. Today, I’m going to show you how to build an effective business budget and earn more profit as a result.
First of all, I never want you to limit yourself by what you made last year. Most business owners look over their numbers from the previous year, sort them into categories, and call that a budget. This “same as last year” approach is crippling your business, however, by making the future your enemy. With this approach, change is bad because it deviates from the plan. Opportunities for growth are overlooked because you’re focused only on copying past success.
Yes, the future is uncertain but you should harness that uncertainty and set big goals for yourself. You can’t know how well your business will do, so why not try to make double, triple, or even ten times the profit you did last year? In this way business budgets become your motivation to grow.
Don’t be afraid you might be wrong, either. You will start to become a better decision maker with a better budget. By working with your budget year-round, you will be able to evaluate business performance and strategically plan for the future.
Budget in hand, you will quickly and easily know when you need to:
• Change products
• Increase prices
• Invest in inventory or new equipment
• Change up personnel or marketing
Budgets even help you set up internal controls within your business and allows better coordination and communication between your team.
How can a budget accomplish all this? Well, to create an effective budget you must take an honest, detailed look at your entire business. After such a frank evaluation, you’ll not only have a better idea of where your business is headed, you’ll have a comprehensive tool to get you there!
Ready to get started?
(NOTE: What follows is the exact, step-by-step process I use to build budgets with my clients. I hold nothing back because I want you to have the financial tools you need to succeed in business.
These instructions presuppose a certain level of accounting knowledge, however. If you’re a bookkeeping newbie you may not be able to lay hands on the information you need to build your budget right away. That’s OK! You are here to learn how to be a better business owner.
That being said, if it takes you more than five minutes to accomplish Step One then your financial records need some work! I encourage you to book a Bookkeeping Strategy Session with me. Together we can build a custom 90 Day Action Plan & Profit Strategy to turn your bookkeeping around!)
Step One: Start with your Chart of Accounts
A Chart of Accounts is your business map within your accounting software. It lists the many kinds of numbers you should track within your business, including types of income, expenses, business loans, and profit. If you do not have a Chart of Accounts, it is time to build one.
The first step in building a business budget is to list your Chart of Accounts. Decide what revenue groups and types of cost to include in your budget. For example, a list of typical business expenses might include advertising, raw materials and labor, professional fees to your bookkeeper, etc. Be very specific when you make these categories, or accounts, as specificity will help you make targeted financial decisions throughout the year.
Once you’ve assembled your accounts, it is time to start thinking of the future. How can you improve your numbers? Remember, you want your revenue numbers to grow and your expense accounts to shrink in order to maximize profit.
Take your time with this step. Go through each account individually and ask yourself the tough questions. These might include:
• Sales Revenue – could my business establish new revenue channels this year?
• Production Expenses – could my business lower its Cost of Goods Sold?
• Raw Materials – Does the business have the right suppliers or software? Could I get a better price with a different supplier?
• Profit – what investments should I make throughout the year?
When you ask yourself these big questions, make a decision! You own your business. You are responsible for its welfare. It is time to start creating the future YOU want for yourself.
Step Two: Make a Budget Model
Think of a budget model as your “rough draft.” Now you take your Chart of Accounts and the big questions you asked yourself and you start to plan for your future.
I encourage you to use spreadsheets to make your budget model. Spreadsheets allow quick and easy edits to your budget model which in turn allows fruitful brainstorming as you decide the future of your business.
This is your time to think about the big picture. Where do you want to be in the future? What numbers will allow you to get there? And what steps do you need to take along the way?
Decide your targets one month, one quarter, six months, one year, and three years from now. Do this for ever account you listed in Step One. Your targets one month through one year will become your budget. They act as step by step business map to guide your decisions through the coming year. Your three year target becomes your business goal. This number will buoy you through tough times and motivate you to achieve big things.
Step Three: Budget the Individual Items
Time to work with the numbers! This step can be intimidating, but remember that all budgets are based on assumptions. The numbers will never and can never be correct, but that can work to your advantage! Remember what I said above and use your budget to motivate and guide your growth.
The best place to start is to look at your numbers from last year. Include the decisions you made in step two, however, to come up with specific, targeted goals for each category. Itemize absolutely everything and use sub-budgets within categories when you have to. The more detailed you can be, the better. Now is a good time to reach out to your suppliers and negotiate new contracts or receive bids for the upcoming year.
Make two drafts of your budget. In the first, estimate your big categories: sale volumes, cost expenses, and calculate your totals. Then go back and break down your revenue and cost information, factor in the bids you receive, and calculate your breakdowns. Building your budget in two steps gives you a chance to focus both on the big picture, and the important details that will get you there.
Step Four: Finalize Your Budget
A good business budget should encourage growth and profit, but that doesn’t mean you as the business owner can lose your head. The next step in building an effective business budget is to run some simulations. What would your budget look like in the best-case scenario? Worst-case? What can you realistically expect between these two points?
Write down your thoughts and reasoning while you puzzle out each of these scenarios and keep this written commentary somewhere safe. Having all three budgets, along with your detailed notes, prepares your business for every possible future. Should you find your sales team exceeding every goal, or should disaster strike, you will have already prepared a guide to steer your business with your budget.
Make sure you also create a cash flow budget. It is important to know the bear minimum amount your business needs on hand for expenses and for taxes. Not having enough cash assets can back your business into a corner even if the rest of your business is performing well.
Step Five: Get Your Budget Reviewed
This is final and most important step when building an effective budget. You should have qualified and trustworthy individuals review your budget and provide their feedback. They may be able to identify areas of concern you overlooked, provide better ideas for improving your profit margin, and act as your accountability partner as your put your new budget into operation.
I call this the most important part of your budgeting process because it is impossible to do business alone. Even with all my money mastery, I learned the hard way that mistakes are far too common and far too easy to avoid if we simply swallow our pride and ask for help. So reach out to your board, your bank, or your bookkeeper and make them part of your budgeting process.
I also recommend you create a special advisory board for yourself. This can be an informal relationship or a formal business arrangement, but it’s important to surround yourself with individuals that will challenge you and help you grow. Take yourself seriously, take your business seriously, and I promise others will sit up and pay attention. So reach out those industry contacts and make them part of your team! This also allows you to include comparison figures in your budget and measure how your business stacks up against the competition.
Finally, enter your budget into your accounting software and reference it often! The fantastic work you accomplished when creating your budget becomes the foundation of your business for the rest of the year. By comparing your numbers in real time to the goals you laid out for business in your budget, you will quickly and easily understand the overall performance of your business. In fact, you will have an exact guide for making your business more profitable