If hearing the word budget makes you cringe, you are far from alone. Many people think of a budget as a bad thing. It’s restrictive, right? Well, a budget is really just a plan for your money. With a budget, you’re giving every dollar a job to do. At least once a year (preferably quarterly), you need to perform a review to ensure every dollar is doing its job. If it’s not, then we need to make tweaks so that you have the best budget possible heading into the new year.
Reviewing This Year’s Budget
Reviewing your budget can be empowering. Instead of wondering how things are going in your business, you know the exact numbers. Don’t beat yourself up over any areas you went over budget. There’s usually a reason it happened, and the budget can be adjusted for next year. You also surprise yourself by underspending in other areas of your budget. You can decide if you want to keep the same budget for next year or move it around to a different area of your business.
How to Create a Winning Business Budget for 2023
This was a tough year for many business owners, with inflation wreaking havoc on businesses and customers. However, many of my clients did have a good year. Some of that is due to proper planning and budgeting. With the right budget in place, your business is set up for success and to weather any storms the upcoming year could bring.
A winning budget has some extra padding and flexibility to quickly adapt to any situation your business can find itself in this year. No budget is perfect, but having a strategy for your money in place will help you hit your business goals.
Follow this simple three-step framework to create your budget for 2023. There are lots of fancy tools available to create your budget. I recommend keeping it simple by using an Excel spreadsheet or Google Sheets.
1. Analyze Revenue - What was your revenue for last year? Look month-by-month and document any high and low months in your business. Many businesses have high and low months, so it’s important to be aware and prepare for them next year.
You can even dig deeper and review which products and services generated the most revenue. Could these products or services be expanded in any way? Are there any products or services that didn’t generate the revenue you were hoping for? Should those products or services be reconsidered or reworked for next year?
2. Review Expenses - Review all of your expenses without any judgment. I highly recommend going line-by-line through each expense. I know it sounds like a lot, but going through this process will be so helpful to you! Look for any duplicates, software you don’t need, or any other unnecessary expenses that you can get rid of. Look for any monthly patterns that you should keep in mind for next year.
After you’ve looked line-by-line, you can go through and categorize your expenses to look for any areas you overspent, underspent, or just didn’t plan for. Things do happen, and that’s why it’s so important to prepare.
Using your data from last year and your goals for next year, you can craft a budget that serves all of your needs.
3. View Your P&L - Your bookkeeping software can generate this report for you. This pulls all your income and subtracts all your expenses to show you the balance at the end of the month. Is there any balance? Not much? We want there to be some balance at the end of the month so that your business is profitable and you can save money for other areas of your business.
Your Best Business Budget Yet
As you can see, a budget for your business can help you grow to the next level. Your budget doesn’t have to be restrictive. It can be very helpful to know exactly how much you can spend and why. Heck, after this, you might actually love your business budget. At Lighthouse Advisory, our specialty is to take all the guesswork out of small businesses reaching their biggest goals. If you’d like to schedule your free consult, please send us a message here.
