(MoneyWatch) A vision without a plan is a dream: A budget puts profit into your plan.
The are four reasons why budgeting boosts your bottom line:
1. A budget tells you how well you plan and how well you execute on your plan.
2. It helps you know how much cash you will need and when you will need it.
3. It provides a financial framework for your goals, values and priorities.
4. By getting your managers involved in the budgeting process, it brings them in to the business of making money.
Take it from "Ain't it Interesting" to Actionable
Boiled down, a budget is simply a plan over time of how much you are going to spend, how much you are going to make, and what your cash needs will be between the two points.
Here's the easiest way to start: Begin with consistent expenses like rent, phones, basic payroll and other costs that don't change much from month to month. Do the same with your income. First, estimate the sales that you can pretty much count on. Look for recurring revenue, current contracts and consistent customers.
Next, plug in your estimated sales and costs. Keep in mind, it's always better to estimate conservatively and be happily surprised then to project too optimistically and get caught short.
The near past is usually a good indicator of the near future, but not always. Start with the near past but then look forward. Rearview mirrors tell us what's behind us, not in front of us. How far would you get before crashing if you spent more time looking in your rearview mirror then out your windshield?
Generally speaking, the longer you have been in business the farther out you can forecast. A good rule of thumb is to prepare an annual budget, but to review and, if necessary, revise it every quarter.
For startup companies and early stage businesses, we suggest budgeting quarter by quarter. Remember how long a summer looked to you when you were a child? Similarly, much can change for a "baby business" in just three months.
Budgeting is a process that evolves over time. The more you do it, the better you get and the more you will get from it. The greater challenge is not in completing it, but in beginning it. Often the biggest strides are made in baby steps.
For more help in determining where some of those baby steps might begin, check out the post, Entrepreneurs, it's time to trim the fat.
And if you're looking for greater detail and specific spreadsheet suggestions, see.