Every business, small to large, needs a budget. It’s one of the most essential financial tools that can keep you on track to reach your business goals. The problem that many businesses face is they’re new to budgeting. Or, to shift their perspective on their financial management, making the most out of your budget can be a challenge.
To help make that challenge easier, here are 7 tips that can help you build and maintain your annual budget.
Don’t Use a Spreadsheet
Spreadsheets are immensely useful, and ever since they started becoming widely utilized over 36 years ago, they’ve been the de facto way to present financial information. So you could say that presenting information on an Excel Spreadsheet has become the norm, a tradition of sorts. However, just because it’s the traditional way doesn’t mean it’s the best way.
There are many reasons why you should avoid using a spreadsheet to present and share your budget.
- It’s not the best way to present data: Unless you use spreadsheets daily, most people have a hard time making sense of spreadsheets. For some, they can even be intimidating, which makes them a less than ideal tool for people to use as a reference tool.
- It can be difficult to see the information you want: This may not be the case for you if you are very proficient in using spreadsheets, but one of the biggest challenges of spreadsheets is that all the data is available at the same time. Yes, it can be organized and separated in several ways, but unless you want to go through the trouble of creating a spreadsheet customized to each user’s needs, you should probably stay away from Excel.
- There are better tools out there: Just because you can do it on a spreadsheet doesn’t mean that it’s the best tool for the job. Today there are tools that integrate with your accounting software and are cloud-based for real-time numbers so that you can have a living document without the need to update it manually. Even within your accounting, Xero provides a budget manager for basic budgeting. (Bookkeeper 360 can help you set this up)
Re-think Why You Are Building Your Annual Budget
The practice of budgeting has long suffered a negative view in the eyes of many business owners and CEOs. That’s because they’ve been seen from a somewhat limiting perspective. Budgets are seen as a limitation. That’s why it’s so common to hear the phrase “If only we had the budget to do that…”.
More than a tool to cut expenses
Admittedly, cutting your operational expenses is a useful and even necessary practice and making these cuts is much easier when you’ve built a robust budget. Having said that, if you and your team see a budget as an expense-cutting tool, you are missing out on a huge portion of its usefulness.
Use your budget as a way to explore possibilities
Every business works with constraints and limitations, it’s part of what every business needs to do. You need to figure out a way to take the next step towards where you want to go with what your business can do right now. It’s in this process of figuring out the next step where a budget becomes an incredibly valuable tool since it provides you with an accurate framework to use to make your strategic decisions. In other words, it keeps you grounded while opening up possibilities.
Use Your Budget as a Tool to Stay On Track With Long Term Goals
One of the biggest challenges that teams have when it comes to financial goals is that they have a hard time relating to them. That’s typical because many businesses don’t invest the time into helping their teams understand the financial impact that their actions have on the business as a whole.
Your budget can be the perfect tool to help everyone see how what they do makes an impact and how they’re moving toward your long-term goals.
Link short term expenses with long term goals
Taking a granular approach and linking specific expense items to your long-term goals (or forecasts) is a great way to help everyone see how their actions impact not only the budget but how your business reaches its goals. Breaking down the budget into more manageable items helps your team draw a direct relationship with an expense item and a goal that’s relevant to them.
Use the Right Mix of Financial Apps to Power Up Your Budget
There are dozens of useful and specialized financial apps. This is particularly useful if you use the right budgeting solution, like Bookkeeper360. You’ll be able to seamlessly integrate apps so you can get real-time updates on your budget.
How many apps should you use?
Every business has different needs, so even if there are many accounting apps that seem to do everything, there might be some aspect of them that doesn't exactly work for you. The good news is that today there are financial apps for every business need. Many even have free trials for you to get familiar with them and assess if they fit your workflow.
More isn't necessarily better, but they can pay off big time. Also, spend some time experimenting because the perfect solution for you might just be a few clicks away. Here are some apps that you could consider trying:
- Expense tracking tools: Xero and Expensify
- Payroll Management: Gusto, ADP, Justworks
- Business Performance and Cash Management: Bookkeeper360
Use Dashboards to Improve How Much People Use Them
One of the biggest challenges that we all have to deal with is managing the amount of information that is presented to us on a daily basis. And not just from work-related topics. Just pick up your cell phone and you’ll most likely get a barrage of notifications and updates. Like it or not, this takes up considerable bandwidth. That's why using financial dashboards is such an effective method to present information.
Here are the top 3 benefits of using dashboards:
- They allow you to deep dive into the data quickly and effortlessly
- They help you keep track of KPIs and measure the impact of your strategic planning
- They help you eliminate analysis paralysis by keeping you focused on what makes the biggest impact on your organization
Review and Update Your Budget On a Consistent Basis
As stated at the beginning of this article, one of the main goals for every budget is for it to become a living document that can be referenced and accessed constantly. This has to become a part of your company culture. Here are some tips to make it easy for your team to adopt this culture change.
- Set the review date: Don’t simply retroactively check the budget at the end of the year. Use it monthly or quarterly to see performance and adjust accordingly.
- Create scenarios: Highlight potential equipment needs or bulk ordering from a manufacturer. Downturn expected? Find areas that are bound to hurt cash flow.
- Adjust the numbers: Your budget isn’t behind plate glass. Does an area need more money? Send it there. Spending too much? Figure out why.
Always Know Where You Stand With Your Budget
Budgets are far more than just spreadsheets you look at when you need to cut costs or that just lay dormant on some hard drive. A budget is one of the key financial tools you can use to help your whole team keep the focus and make reaching the goals you’ve set for your organization realistic and timebound.
Understandably, building, and maintaining a budget can seem like a time-consuming task, especially if this is something somewhat new for your organization. This is where having access to the right tools and working with a great accounting service can transform the building and maintain your budget from a time-consuming headache to a downright success.
At Bookkeeper 360, we handle the budgeting process, providing real-time data to give you a visual of where your business stands. Learn more about our advisory services here.