Remember when you started your Small Business full of enthusiasm and excitement peppered with some…
Why Budgeting Is Essential for Success and Growth
“Success is a journey, not a destination”, a quote from Arthur Ashe, is a motto that is well worth using in all aspects of your life including your business.
However, I believe that it is important to have destinations to get to along the way. Or to put it, in other words, to have goals and milestones to ensure that your journey goes in the direction you want to go.
At the age of eleven, I learnt the importance of budgeting. My family had moved to Canada and money was tight. My mother would come home from the supermarket and pull out the docket and calculate how much money she had spent on fruit and veggies, meat, dairy, bread, cleaning products and so on. She kept a handwritten schedule (the equivalent of today’s spreadsheet) where she updated the figures every week.
In addition to the weekly supermarket spending, she added in all the other costs of running a household with four kids. And I distinctly remember desperately wanting some new clothes so I would fit in at school (there were no school uniforms) but knowing that there was no point in asking as there was no spare money to buy them.
Over the first couple of months, my mother built up sufficient data to see trends in the numbers and to identify where she could reduce costs so that the money would go further, and yes, she did eventually take me shopping for some new clothes which were fabulous.
I returned to Australia on my own when I was 18 and kept similar records of how I spent my salary, although not to the same level of detail. But I knew my fixed costs which were the rent and my weekly travel pass. I had a budget for food and a small amount leftover which I would save up to buy clothes or pay for a weekend away.
The value of setting budgets is in keeping your spending within the limits of your financial capability. It’s too easy to use your credit card without thinking about whether you can afford the item or how you will be able to pay the card off.
A friend of mine told me of attending an event recently and signing up for the full program on offer which was tens of thousands of dollars, whilst at the same time the business is losing money. My friend has maxed out the credit cards and will have to dip into life savings to pay off the card. Now if the program helps to increase the revenue of the business, great. But if not, even though it will be a great experience, the money would have been better spent on marketing the business.
Having a budget makes it easier to make decisions about how you spend your money. Decisions will need to be made through the year and with a budget, you can see the options and make informed decisions.
Budgeting also allows you to set goals and milestones that will give you a sense of achievement and purpose. Think of how you will feel when you achieve your goals and pre-plan a reward or celebration. I’ve worked with clients who had a business that had maintained a fairly consistent revenue of around $800 thousand for some years without a budget. When the budget was put in place, they decided that they wanted to crack the $1 million revenue. And guess what? They did, which was awesome. I firmly believe that without the budget they would have had another $800 thousand year.
So, I challenge you to create a simple budget for your business and keep track of how your actual figures compare to the budget. It is with a budget that we set our destination, the goals and milestones. By focussing on what you want to achieve, you will get the results.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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