Is this the year you plan to finally use that amazingly complex complicated complete budgeting software you bought? Or at least pull out that 20-page budget from your desk drawer before December 31, 2012?
I love gadgets, I love software – and I’ll even admit to loving complicated spreadsheets. But you are not me. Newsflash I know, but it is something often forgotten by those hawking these technological terrors solutions: most people would prefer to walk on broken glass than power up a budgeting program.
Time for an easy, effective budgeting solution that won’t break the bank
It is possible to create a small-business budget in a day. You can do it without lots of software, spreadsheets or even working up a sweat. Plus, this easy process will cost you less than $35.
Preparing for battle
Many entrepreneurs look on their budgeting and expenses as a battle. That’s OK; in fact, it’s a great theme. You are in a fight against out-of-control spending, wasted resources, and lack of cash flow. To the winner goes the profit.
The first step in preparing for battle is to acquire the necessary supplies. You will need:
You’ve just outfitted your army for a mere $35! Of course, if you think a general’s hat, samurai sword, or lightsaber will help you get the right mindset, go ahead and splurge. (Fun Fact: I own eight life-size lightsabers and two butterfly swords.)
Next, a smart military leader collects information. At a minimum, you should have the following:
Creating the Battle Plan
Even in today’s high-tech world, military leaders like to see some sort of visual representation of their forces. When dealing with numbers, it is easy to overlook the fact that it doesn’t need to be in a spreadsheet. Here’s how we’ll create your visual battle plan.
Step 1: For each budget category, take a clean sheet of paper and write Annual Budget and the name of the category at the top. Below the title, write Amount Spent in 2011 and the dollar amount.
Step 2: Lay out all of the sheets of paper on your desk or conference table.
Step 3: Each category has sub-categories. Let’s take Sales as an example. You would expect to see expense buckets such as Training, or perhaps Commissions under Sales. For each of these sub-categories, write the title on a large sticky and post on that page. Don’t get too carried away; 4 or 5 sub-categories should be enough. Repeat for each category.
Step 4: Take another clean sheet of paper and create a key for the value of your coins or chips. If you are using change, you might make nickels equal to $500, dimes equal to $1,000 and so forth. If you are using poker chips, be sure to assign an appropriate value.
Step 5: Now, create a stack of coins or chips that totals up to your initial 2012 budget estimate.
Step 6: Time to spend your money! Using only the coins or chips in your budget stack, start allocating your 2012 funds. Personally, I like to start with piles for categories, then drill down to sub-categories. This process can take as little or long as you care to spend. My only caveat – be realistic. If you spent a total of $10,000 on a certain category in 2011, it is incredibly unlikely you will only spend $2,000 in 2012.
If a sticky note doesn’t have a coin or chip on it when you are done, it means your budget won’t cover it. I like to use my highlighters at this point to put focus on the mission critical items. Are those funded? If not, what will you give up to pay for them? Or do you need to increase your overall budget?
Step 7: Once you’ve set your annual budget, it is time to creating a monthly one. I know you’re thinking you can skip this step. You can’t. Tracking expenses on an annual basis is a plan for disaster. Do generals wait until the battle is over to find out if their troops have enough ammunition or food? Not if they want to win.
While you could just divide each number by 12 and call it a day, I would not recommend it. Some expenses are annual or even seasonal. I have yet to see a real world expense report that is identical for all 12 months.
To develop the monthly budget, simply repeat Steps 1 through 6, except make the title along the lines of January Monthly Budget – Sales. Create one page for each month of the year for each category. You’ve got your overall category budget set; now, divide it up into the 12 months.
On the Battle Field
No battle plan survives contact with the enemy.
This is why so many budgets are simply tossed away or used as drink coasters. Once the year has begun, they become obsolete. As a business owner on February 1st, you look at January and think, “That isn’t what I expected.” often followed by, “So it is now useless.” Wrong!
It’s simply time to recalculate. Think of this as your budget GPS system. When you are using a GPS for directions in your car, you often hear “Recalculating.” That doesn’t mean you can’t get to where you are going; it simply means that you need to revisit the path.
What is different than you expected in that first month? If you spent more money than your budget, can you find out why? Can you fix the reason or do you need to modify the other categories to keep you on track? Feel free to put all of your pages on your desk or conference table and revisit the exercise.
Remember that every dollar you go over your budget is a dollar out of your pocket.
How long does it usually take you to budget? Do you look at your budget once the year is underway? What are some tips or tricks you can offer to make this process as pain free as possible?