How I Learnt To Stop Worrying & Love My Budget
November 30, 2017
As a young guy making his way in the leanest economy of recent times, my concept of budgeting has basically involved saving as much money as possible. It has meant buying the economy-sized boxes of cornflakes, raiding the TESCO budget shelf for still-good fruit and veg, and feeling pangs of guilt for not doing the weekly shop at the distant LIDL outlet.
Doing my research for this blog I came across a very interesting point – that budgeting is not about saving money, but rather about not wasting it. Naturally every business has to initially invest money before it can make a profit, and so budgeting is important even when you’re in the red. This blog will sum up a little of what I’ve learnt, with some shameless plugs for budgeting software that will make this essential but sometimes painful process easier.
It would be an unfortunate mistake to consider your budget a straightjacket that limits your success. Rather it is a tool that keeps your business on track, helping you achieve your desired outcomes.
Every business venture requires research and preparation; determining what makes your product different, understanding whom to sell that different product to, and building the nerves needed to jump into the entrepreneurial abyss. Even the best-planned business is going to fail if the money isn’t managed. For businesses that are just starting up, there are three processes that need to be implemented, to ensure a return is generated as soon as possible.
Making your business plan
It’s a no-brainer, but a well-structured business plan is essential to success, as a means of determining how your money can be utilized to the best possible effect. Your business plan should include:
- A summary of what your business will be and what its success will look like.
- A detailed look at how that success can be achieved.
- What your products will be, and how they will be different from your competition’s.
- The intended market for your products, and how you intend to keep that market secured.
- What your team will look like.
- What will be your business’s financial needs.
Annual Budgeting – This determines the fixed and variable expenses of the coming year, and what your budget outcomes may be. A good budget is essential for ensuring companies have long-term success. Failure to manage an appropriate budget can lead to businesses failing even before they get off the ground. A budget is not a record of the money that has been spent, but it is plan for how money will be spent, and as a plan it is only as good as its creator’s dedication to sticking to it. It needs to include:
- Your income, which is the maximum amount of money you can spend.
- Your outlined fixed costs – those that can be determined and prepared for.
- Variable expenses, which require liberal preparedness.
- An amount of funds which will serve as a contingency buffer – protecting you against potential problems.
Forecasting – This is an on-going process which helps predict an organisation’s earning and spending. Forecasting is a process which must be undertaken over the full length of the business plan’s implementation, and should take into account potential risks and opportunities.
The android accountant
There is plenty of success to be had in small business, especially if software is being smartly in order to eliminate the need to rely on expensive contractors. Good budgeting software will help do two jobs – streamlining what is otherwise often a long, tedious and strenuous process. The software helps minimise mistakes in manually-developed budgets (for instance, those created in Excel), while it can also take advantage of effective financial trend predictions.
The question of what budgeting software to use is a complex one – there are abundant products that can help maintain a small business’s budget. Looking through the options has indicated that in terms of choosing one programme over another, businesses should look for ease of use. Many products will work well in partnership with others, which are designed to streamline how your business operates (Slack for team management, for instance, or BookingLive for collaborating with customers).
That said, here are some of the more popular budgeting applications. I would recommend trying each of them out, and seeing how they could fit into your business framework.
- Float has good potential for integration with other tools like Xero, Quickbooks Online, and Free Agent. It is particularly useful for visual budgeting and monitoring cash flow (Adaptive Insights fulfils similar functions). Float prioritises accessibility and simplicity over other features. If you are a visual person, and your business is not particularly large or cumbersome, Float could be a good choice.
- Planguru, as its name suggests, is good for planning. With Planguru you can import from QuickBooks and Excel, and its range of forecasting features allow you to draw on all your information resources to get a good picture of where you stand!
- Billquick, as its name suggests, is good at billing. It has useful invoicing features that help you connect with clients. It also has project management features – your business may need a separate piece of software to cover this important area of work, but if your operation is fairly small this side-function may be sufficient for your needs.
- Last, but not least, there’s QuickBooks – the Coldplay of budgeting software. Its name appears everywhere, everyone knows about it, and it has lots of good features which have for a long time been relatively straightforward and simple (your ‘Clocks’ and ‘Parachutes’), with some interesting new add-ons (Your ‘Viva La Vida’). Like Coldplay, lots of people prefer Quickbooks, although it may not be fashionable to admit it. The same qualities that make Quickbooks so widely appreciated as a tool, may also make it not particularly useful for unique and adventuresome companies.
Tip of the iceberg
This content is a basic overview of what is a very complex topic. What are your thoughts about how budgeting should work? What suggestions haven’t I made, that you would have included? Please share your thoughts with us!